These Billing Mistakes are Messing with Your Receivables. Here’s How to Fix Them.
Establishing an effective accounts receivable process is essential to running a successful business. Significant and systematic invoicing errors often plague busy small business owners. Putting in effort right from the start to get your invoicing right will result in a more reliable cash flow.
A segmented billing process can negatively affect everything from marketing, sales and overall operations of the business. Business owners wearing many hats may not have enough bandwidth to organize their accounts receivables. This issue almost always leads to a mounting cash flow problem. Sound familiar? Check out these are the five mistakes that will mess with your bottom line and how to fix them.
No Late Payment Policy Implemented
So, you’ve sent the invoice, and now the payment is overdue. Rack up enough late-to-pay accounts and it can cause a serious gap in receivables. For small business owners, it’s a delicate balance managing cash flow and day to day operations/unforeseen expenses. This is one issue you can easily avoid with proper policy implementation.
How to fix it: Lay out a concise late payment policy. When dealing with new clients, inform them of the payment policy which should include all consequences of late payment. Make sure your policy is clear and leaves no room for any confusion. Additionally, put friendly reminders warning about the consequences of late payment on billing.
No Payment Reminder Set up
Setting up an automated payment reminder system is an easy fix before late payment becomes an issue. If you can set your business up to receive payment on time or even faster, you decrease the chances of dealing with a cash flow issue down the line.
How to fix it: If you aren’t using specific software already, you are missing out on a tool which will organize and simplify your billing processes. Look into invoicing software applications to automate each touchpoint which your clients. You can use the application to send reoccurring reminders via SMS or email to keep the outstanding balance top of mind.
Not Pursuing Late Payments
Not chasing late payments is a huge billing mistake. Often, small business owners often so tied up with so many details of running operations, they don’t have the capacity to track down late payments. They may also be hesitant to chase for fear of damaging client relations. If you aren’t getting responses from email/phone reminders, then it’s time to pursue things further with the help of a collection agency.
How to fix it: Before you turn any accounts over to collections, use late payment outreach to build a stronger relationship with the client. If payment reminders are ineffective, it’s time for an individual outreach effort. When you make contact, find out why the payment is late and then work out a plan which works for everyone. Using a collections agency should be the last resort.
Unclear payment terms/charges
Have you ever been surprised by an invoice which charged you more than expected? It’s confusing and even annoying trying to track down the reason for the additional charges. One of the worst mistakes you can make is not itemizing every charge before you begin a project with a client. A clear description of the work and the expenses that come with not only cuts down on confusion but is the best way to approach a professional relationship with clients.
Setting up payment policies and being proactive about past-due payments can prevent billing mistakes which can negatively affect cash flow and ultimately the bottom line. Many small business owners do not have a cushion of cash on hand to soften the blow that a gap in receivables causes. While you may put every preventative measure in place to prevent them, the unexpected can always occur and threaten a business’s day to day operation and future success.
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