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If you are operating in an industry that practices sales on credit, there is about a 50% chance that your invoices will be paid late.
Few steps you can take to vastly improve your situation
It is a common assumption that once you deliver the goods, the payment part will take care of itself. Most entrepreneurs are surprised that in real life it is seldom the situation. If you are operating in an industry that practices sales on credit, there is about a 50% chance that your invoices will be paid late.
There are few steps you can take to vastly improve your situation:
- Be aware of the issue – if you are reading this, you are already ahead of the game. Understanding that the payment process isn’t automatic is crucial. The good news is, that if you will follow the next steps, you will be doing better than most.
- Stay mindful of who your customers are – this one may be obvious to some and invaluable to everyone. Even if you are not a huge company with a credit team, you can use your best judgment about how much to sell on credit to a certain customers and what payment terms to set. Is it a new customer? Maybe set shorter terms. The customer paid late on the last transaction? Might be best to be cautious and ask for some down payment or break down the project and invoice at each milestone. The only thing worse than not getting any business is delivering the goods and not getting paid for it. Limit your risks.
The only thing worse than not getting any business is delivering the goods and not getting paid for it. Limit your risks.ARIK ABRAMOVITZ CEO at Masterfood
- Get your facts right – what sort of relationship do you have with your customer? A signed contract? A purchase order (PO) that the customer issued? Do you have a proper address and email to send invoices to? These may seem trivial, yet, invoices that were not received are the leading cause for non-payment. It is best practice to get all necessary information for billings upon customer creation in your accounting system (at the same time that you get an order in any form).
- Invoicing – While not receiving invoices is a leading excuse for not paying, wrong invoices are right next to it on top of the list. If you are new to entrepreneurship it is best to consult with your accountant or online accounting vendor on how to correctly issue an invoice. If you have some experience under your belt, getting it right should not be a problem. Just pay attention and ask your customer for the information upfront. <br> <br> Get the right contact to send it to, and make sure that customer’s name (or company name) is spelled properly. If there are taxes, make sure they are calculated correctly. Item quantity and description should also be on point and be matching the order form/purchase order/agreement.
- Make sure you have a collections process – any process is better than nothing. Make sure that you monitor your receivables. Do you know what the total amount outstanding is? How much of it is past due? What about the aging bucket – how long the past due invoices are actually past due? Next, determine what action you are going to take in each situation. Is the customer a few days past due? Maybe it’s time to send them an email, to check that the invoice was received and everything is okay. Did you not receive a response and are they a couple of weeks late? Might want to follow up with an SMS. A month passed and still nothing? Start working on an official letter.
Make sure you have a collections process – any process is better than nothing. Make sure that you monitor your receivables.
- Be consistent – if you are not focused on getting paid, your customers will rarely bring this up for you and make it their priority. They have more pressing things to do that will benefit them more. Monitoring outstanding invoices repetitively and sending out reminders is time-consuming. It is best to use accounts receivables automation tool – like Gaviti. Your time is precious and each reminder you send takes time from you doing business. Also, we can all get distracted or forget to follow up on an invoice, which can be costly. Collections automation that can be synchronized with your online accounting service will save you lots of time at a low cost. Gaviti will allow you to get a clear summary and will send you activity stats regularly. We make it our business to remember for you.