In theory, small businesses are supposed to sell products or services to their customers and get paid in a timely manner. Unfortunately, the world doesn’t always work that smoothly.
Believe it or not, 64% of small businesses deal with late payments, according to a recent infographic from Fundbox. Lacking access to the money they’re owed, even the most routine business functions—like making payroll, covering utility bills and buying materials and supplies—can become considerably more difficult.
On top of that, when small businesses wait for payments, they are unable to quickly respond to new opportunities, develop new marketing strategies or expand into new locations, among other setbacks. What little money they have on hand is already accounted for.
While some companies may be able to let some payments float for a couple of weeks, a number of small businesses report that they’ve received late payments on Net 60 and even Net 90 invoices.
How can you expect to grow your business if you’re not getting paid for what you do?
For these reasons, small businesses would be wise to develop the kinds of client relationships that discourage late payments right from the get-go. Here’s how you can do that:
- Choose your customers carefully. It’s best to never start working with deadbeat clients or ones who have track records of paying late in the first place. Prior to signing on the dotted line, run a credit check and ask for references to see whether a prospective client should be onboarded. There’s no sense in getting involved with a company has proven it doesn’t pay its bills on time.
- Start with a contract. Once clients have passed your background check, it’s time to put together a legally binding contract. This isn’t really as hard as it sounds; you should be able to find templates online, and once you’ve created one that’s specific to your business, odds are you will only have to tweak it a bit as you move from client to client. Be sure to include information pertaining to the scope of the project or work relationship, your rates and expected delivery dates. Also note when payments are due and whether there are any incentives to pay early.
- Ask for a deposit up front. Working on a huge project? Don’t be scared to ask for some money up front. It’s not uncommon for freelancers and contractors to ask for 50% or even 100% before getting to work. To ease any concerns clients may have about paying up front, consider offering money-back guarantees or having a third-party escrow service hold onto the funds until projects are wrapped up.
- Make it easy for them to pay. To ensure you get paid promptly, it’s easiest to bend to the payment platform your customers prefer. If they use PayPal, let them pay you through PayPal. If they use bill.com, let them pay you through bill.com. If prefer ACH deposits, go that route instead. Essentially, you want to make it as easy as possible for your clients to pay you.
- Communicate often. Don’t leave your customers in the dark. Instead, nurture your relationships with them. By establishing and maintaining always-open, transparent lines of communication with your customers, you increase the chances your relationship will be stronger, as everyone is on the same page and there aren’t any surprises when it comes to products, services or other deliverables.
When you establish a great relationship with your clients right off the bat and cater to their needs as much as you reasonably can, you can significantly reduce the likelihood that these customers will submit late payments.
Unfortunately, your customers can’t control everything on their end, either. So from time to time, payments may still be delayed, even if you have a great relationship with them. For example, a customer might be waiting on their clients to settle their bills before they have the funds to pay you.
Instead of having to spoil otherwise fantastic relationships by badgering your clients the moment payments are late, you can use a service like Fundbox that accelerates payments on outstanding invoices.
Fundbox allows you to clear invoices with ease, sending money to your bank account quickly. You then have 12 weeks to repay the advance, plus a small fee. To learn more about how your business can grow with Fundbox, please click here.
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