In any business, especially small and medium enterprises, one of the crucial components for success is cash flow. Despite this fact, many are the enterprises that struggle so much when it comes to cash flow. Even after supplying products or services, some customers are reluctant to pay.
As clients delay with payments, you are likely to get between a rock and a hard place trying to get them to clear payments, retaining them as clients, and run the enterprise. To help you with the problem, we have prepared five tested and proven ways that you can use to reduce debtor days.
Be Clear About Terms of Payment on Your Invoice
The first, and perhaps most effective, way of getting your clients to clear debts fast is being precise on when the payments should be made. If your invoice does not have a clear date of payment, it is likely to be pushed behind other bills. It will not appear urgent.
If you make it clear on the invoice that payment should be made by a specific date, the client is likely to pin it on the tasks to be done on that day. If the payments are paid in instalments, you also need to be specific when and how much the client should pay.
Make it Easy for the Client to Pay You
When you sell services or goods, especially to small and medium enterprises, it is important to appreciate that their management might have very busy schedules. Often, you will get the managers handling a lot of tasks. A single person can be in charge of operations, marketing, logistics, and finance.
As opposed to adding work in terms of papers they need to sort or emails in their inbox, empathise with them. One way of doing this is by providing a 24/7 payment portal. This implies that they can always clear your payment every moment they are reviewing their finances, instead of expecting them to visit, call or reach you only during business working hours.
Charge a Penalty for Late Payment
Have you ever borrowed a book or movie from a library where returning it late attracted a penalty? The fine served as an incentive to return the movie on time. You can apply the same analogy to reduce the debt days.
When you attach a fee for late payment, your debtors will make an effort to clear it faster. The penalty will be an additional liability that is easily avoidable through timely payment. Remember to make sure that the client understands the penalty and it is visible on the invoice.
Use Technology to Get Debts Cleared Fast
People like to stay connected and next to their devices such as smartphones, tablets, and laptops. Indeed, some business people or managers spend little or no time at traditional desks. Therefore, you should focus on using technology to your advantage.
First, you should automate your invoicing and reminder system to make it easy to reach your debtors wherever they are. You should make it easy for debtors to use electronic means to clear payments. This means that even if the finance manager is away from his/her desk or working late, your invoices will be easier to clear than those on the work desk.
Be a Problem Solver
No client wants to be late with payments. It is really embarrassing when clients have to ask for more time to clear payments. Well, it will be even more awkward if the client needs more goods or services yet there is an outstanding debt. Something must be wrong somewhere and you should try to help. Here is how to do it;
- Provide your clients with a fee funding option. This is a method that allows you to receive money upfront but allows clients to pay in instalments. This way clients will never feel embarrassed to come back for more services because payments are guaranteed.
- Instead of taking your debtors to collectors, approach them and try to understand what the problem is. If you take them to collectors, that marks the end of your business relationship. The businesses might be going through a difficult phase and only need a short while to work through cashflow issues. In such a situation, consider renegotiating the terms of payment.
Conclusion
When debtors take a long time to pay their dues, your operations can be affected severely. Your business can grind to a halt. Therefore, you should use every effort to courteously make them pay. Make sure to use the above strategies to reduce debtor days, retain them as your clients, and grow your enterprise!