As a small business owner, you already know what happens when you do not pay your bills on time, but what to do when you have late paying clients. To those on the outside, the answer may seem simple and clear-cut. For businesses in this situation, it is anything but easy.
Entrepreneur Donald Trump once quipped that when you owe a bank $10,000 you are in trouble but when you owe a bank $10 million, the bank is in trouble. Sometimes, it is your biggest and best clients that can cause you the most grief, especially if you have late paying clients.
Reasons Why You Might have late paying clients
It is easy to take it personal when a client does not pay on time. However, it may help to realize that it could have nothing to do with you.
Even though you may be meticulous about keeping your books and paying bills on time, your clients might not be. If a client is habitually late in paying you, it could be a red flag signaling financial trouble or simply poor bookkeeping skills.
Getting Your Money
When you have a client who does not pay you on time, it can seem like a breach of trust. After all, you lived up to your end of the bargain by providing the goods or services. Now, you are being inconvenienced and cannot pay your own bills because the client is not holding up their end.
For most small business owners, running after late paying customers is an unpleasant, time-sucking activity they could easily do without. No one wants to be the bad guy, but you need to get paid. Perhaps more importantly, you also want to retain the customer’s business in the future. Therefore, you need to know how to collect the funds owed without being rude.
You can begin with a status communication to ensure that your client was pleased with the order, shipment, service, etc. At that time, you can also pleasantly remind the customer that payment is now due.
It is important to remember that you are running a business and if your customers are satisfied with the goods or services you provide, they have to pay for it. It’s that simple. Late notices, reminder emails and warning letters are part of the process. As long as you remain professional and courteous, your business clients should not hold it against you.
Of course, sometimes even this takes up too much of your valuable time. There are online programs you can prompt to automatically handle this task for you. In addition, you could also delegate this responsibility to an accountant or other staff member. This person can act as a buffer between you and the client.
Moving forward, you may need to change your payment policies. For example, you might require a 50 percent deposit on all large orders or attach fees to any bills which go more than 90 days past the invoice date and you would be surprised how accepting companies are to credit card payments.
An Alternative Funding Solution
When there is lag time between goods or services going out and money coming in, this is known as an accounts receivable gap. Many small businesses experience this, making it difficult to know when or if you are even seeing a real profit.
Sometimes, this situation can lead to a cash shortage, preventing you from making payroll, paying taxes or jumping on a lucrative business opportunity. If this has happened to you and you need fast cash, there is a way out.
A cash advance factoring company, like Financing Solutions (www.fundmypayroll.com) , can help. These firms will purchase your account receivables and provide you with a percentage based on what they are worth. You still collect the money owed to you by your client but you make small payments to Financing Solutions for the funds borrowed. Many small businesses use these cash advances like a bank line of credit when they are low on cash.
This help comes without a long term commitment or having to provide tons of collateral. You can repay the money in a few weeks or months, unlike a small business loan from traditional bank which requires you to be under their thumb for years. It is like having the best of both worlds. You can get the emergency cash you need, usually within 24 hours, make payroll and put new processes in place for future client receivables.