If you own a business, you know the heartburn that can ensue when a customer does not pay you in a timely fashion. Often these delinquent accounts go to collections. That rarely helps. With customers who are chronically late in paying, nothing tends to change their habits. If you have a customer who is usually on-time with payments who has had a bad month or two, collection action can disturb the business relationship.
How can you minimize such difficult scenarios? First, check the credit of a business who wants to purchase goods or services from you, before deciding to accept that business as a client. Then, implement a sound strategy for billing and handling late bills efficiently.
Companies such as Edgar Online and Equifax can provide important financial information. Knowing a company’s payment history can show you how that company pays other vendors…and how the company is likely to pay you.
Dealing with your invoices effectively can start with something as simple as sending a statement immediately after goods or services are delivered to a customer. Be consistent in your actions. It helps to have some sort of method, available in various software programs, of keeping track of the aging of your unpaid invoices. Is the invoice 30, 60, or 90 days past due? Take appropriate action regarding these aged invoices.
A courteous and calm phone call a few days after an invoice becomes overdue can help bring in some cash. Be polite and try to find out when the check will be sent.
If continued follow-ups by phone prove ineffective, consider invoice factoring. Typically, you can sell late invoices to a factoring company for a fee. This gives you some immediate cash flow while the factoring company awaits the customer’s payment. Fees can vary based on the payment history and credit worthiness of your client. If a client has too bad a credit history, the factoring company may refuse to purchase the invoice.
You may even wish to utilize a factoring company your department of credit to help prevent problem customers. The factoring company will also look hard at you as their client. Be sure your profit margins are healthy and that your company has good management.
Factoring invoices is a strategy that may not be appropriate for every company. However, for some companies, factoring can help them keep money available to run the business, while still offering credit.
