Ask the Experts: How to Deal with Lag Time Issues in Your Billing Cycle
Collecting payments is a constant struggle for businesses of all sizes, but especially so for small ones. Small business owners wear many hats and the time it takes chasing down payment can put the squeeze on other areas of the operation and cash flow. Maintaining that cash flow is essential for smaller business and doing so increases the chances of success. At Reliant Funding we speak with successful business owners every day who are struggling with delays in their invoicing and billing cycles. While experts at alternative finance, how to best address these billing challenges is not our specialty. We reached out to experts across the country looking for actionable advice on how businesses can both avoid these issues and more importantly mitigate the impact they have on the business when they do arise.
Elie Y. Katz, founder, President and CEO of National Retail Solutions a company offering POS and merchant services and cash advance solutions, says small and large businesses’ relationships with customers are like marriages. Communication is key. Maintaining a relationship is usually easier and more worthwhile long-term, than recreating a new one from scratch.
“My advice is to treat each customer as a relationship worth working on and maintaining. It sometimes requires a gentler approach. When a customer owes us money for their point of sale system or is late on payment of their monthly recurrent fee, with the understanding that delays happen, we offer a generous grace period. We gently remind them that their balance is overdue, either with a phone call or email or via an alert on their POS screen. We assume they just forgot and try to give the benefit of the doubt. We’ve at times even had a sales agent visit the store to pick up a check or cash payment. It’s usually accompanied by a warm conversation about how we can help them grow their business and make more money.”
Managing Attorney, Elliott M. Portman at Portman Law Group, and also chair of the Creditor’s Rights Law Committee of Suffolk County Bar Association shares his tips to prevent a lag in the billing/payment cycle:
Don’t delay the first phone call to the customer. Don’t delay demands. A reminder that you are expecting payment should have the desired result. Call the accounts payment clerk, not the CFO. (The CFO or president of the company might transfer you to the A/P clerk to extend their time to pay.)
Get credit card information as part of your customer order system. Asking for credit card information as part of your credit granting process has the positive effect of weeding out the bad customers who aren’t serious about paying.
Make sure your invoices are correct and complete. If you eliminate confusion, you eliminate reasons for delay in payment. Put terms and conditions on your quotes and contracts. Include a penalty for late payment (finance charges) and an ability for you to recover attorney fees from the customer in the event of a default.
Understand your customer’s payment cycle. If they issue checks on a fixed day of the month, time your invoice to arrive a few days prior to checks being cut. Invoices at the top of the pile might get paid first.
Ryan Knoll owns & operates Tidy Casa, a cleaning services company in Phoenix, AZ says when he started his home cleaning business, he learned just how important cash flow and lag time were to success. Here is how he handled two issues:
Issue 1: Owing staff for completed jobs we hadn’t gotten paid for yet.
In any home services business whether you’re fixing HVAC units or cleaning toilets, staff needs to get paid promptly. No one with bills to pay and children to feed is going to do net 30 on a 40-hour work week. This goes without saying.
What I found out is many customers don’t seem to agree. Or at the very least, they’ll take as long as possible to pay bills if you let them. This can create a lag time cash flow nightmare for any business.
The solution: The solution was scary at first but revolutionized the business in the long run. We took a 2-step approach. First, we started saying NO to checks and cash payments. Then, we started collecting credit cards for every job. Second, (and this is the most important part) the day before an appointment we’d put the amount for the job on hold. This way we always knew A) we had a working credit card and B) the customer had the money.
If we couldn’t get a card on hold the day before we had plenty of time to get things figured out. Almost all customers have been very understanding of the idea over the years. We’ve had only one or two who didn’t want to give a credit card. Those were most likely bullets dodged.
Issue 2: Credit Card Processing Lag
Once we figured out getting paid the day of service we had one other problem that was killing our cash flow. The delay between running the credit card and getting that money into our bank. It could sometimes take up to seven days to get the cash in hand.
From the get-go I was trying my hardest to be the “good boss” and pay people the same week they performed a service. Once again, lesson learned. This doesn’t work for cash flow. We pulled the band-aid and pushed pay dates from the week of the job to the following week. This gave us more than enough time to make sure cash was on hand to process payroll.
The second thing we did to help with payroll was find another payroll processor. One who could pay our contractors faster. Initially, our payroll processor took money out of our account on a Monday to pay contractors on a Friday. We found a new payroll processor who could do it in two days instead of five. The combination of the new timeline for money coming in and a slight delay on payday made a world of difference.
As you can see, there are many approaches to finding the right accounting solution for your business. We hope the expert advice has been helpful.
Each business owner deals with their own unique set of challenges, and we know cash flow and obtaining working capital is among them. If you’re looking for a flexible and easy way to get cash flow for your business without the hassle, we are the perfect business partner for you. Want more information? Call us at 1-888-239-7865 to get started today.