Most business owners know the frustration of chasing an overdue invoice. It’s something you shouldn’t have to do, and you don’t really have time for, but it’s just part of being in business.
As many as 40% of businesses admit to paying invoices late, by as much as 36 days after they were due.
It’s an annoying reality, but the good news is, there are things you can do to promote a positive customer business relationship so customers pay invoices faster.
Strong business relationships are built on standards that encourage partners to operate in each other’s best interests. This includes getting invoices paid promptly. Having the right invoicing systems in place makes it easier for customers to pay invoices faster, so it’s worth checking you’re doing all you can to promote prompt payment.
Building good customer relationships is something you probably know is important. But what you may not realise is how it can actually impact cash flow.
In fact, one of the biggest benefits of customer relationship management is it promotes mutually beneficial behaviour. A good customer will make the effort to pay invoices on time if they know it’s important to the supplier.
You’d do the same thing for your own suppliers that you support.
Why is this so important? Because cash flow is critical, particularly among small businesses.
Invoices are great, but money is better. By establishing a customer relationship model that includes paying bills promptly, it alleviates cash flow issues from unpaid invoices and allows your business to concentrate on the important things.
Client relationship management is a term that outlines standards and practises a business aims to adhere to in its dealings with customers. It’s sometimes abbreviated to CRM, particularly when referring to a customer relationship management (CRM) database.
Having a standardised approach to client relationship management helps to establish and maintain good relationships that benefit your businesses in four key ways:
As well as having a genuine impact on your success as a business, they also just make doing business easier and more enjoyable.
With these significant benefits in mind, it’s hard to understate the importance of strong client relationships.
It’s great when you get invoices paid quickly. The thing is, you can hardly go nagging clients to pay as soon as you send them an invoice – your cash flow might be great, but you’ll just annoy people.
But you can make changes to the way you invoice customers to encourage and enable them to pay invoices promptly.
Developing customer relationships starts from the very beginning. If you can set clear expectations around when you want to be paid, you’re much more likely to receive payment on time.
It’s worth having written company terms that you share with customers before you start working with them. Terms and conditions are easily referred to if needed, and they’re a great way of establishing the basis of your business together.
The expectations you set won’t mean much if you don’t enforce them. Charge late fees as you say you will, and stick to the parameters you’ve agreed from the outset. The good thing about having them written down is you can refer back to them if you need to.
A good customer relationship model means being able to enforce the rules and continue to work together healthily.
Read more: Strategies to strengthen relationships with customers (coming soon)
There are a range of ways invoices DON’T make it easy for customers to pay them.
A customer should be able to open your invoice and have everything they need to know right there. Otherwise, there’s a much higher chance they won’t pay on time.
Pay attention to customer habits – you may need to adjust your approach for some. For example, if a customer is consistently late to pay invoices, you can start to communicate with them more regularly to remind them the due date is approaching.
You may find you have a lot of customers who pay late, so charging late fees or giving an early payment discount could be worthwhile. You can still have a good customer relationship when you use these techniques – it’s about the way you communicate them.
The overwhelming majority of businesses today invoice using dedicated invoicing and accounting software such as Xero, MYOB, QuickBooks or Reckon. They help to make payment simple and have automated reminder emails that you can set up.
If you’re setting up your software, look into the features and use them. They’re there to help you! It’s easy to just set up a basic system that doesn’t fully utilise what’s available.
Unfortunately, while you can take steps to encourage and enable prompt invoice payment, there will always be some customers that just don’t pay invoices on time.
This creates cash flow pressure on the business, creates financial stress and can take unnecessary time and effort to chase. It can end up costing you revenue if you never recover what you’re owed.
Beyond simply chasing clients to pay invoices, there are two things that can really help:
Call in the pros. This saves you time and energy chasing it yourself, though it can cost up to a third the value of the invoice itself. Also, collections services often require invoices to be at least 90 days overdue before taking them on.
Not only that, but calling a debt collector is likely to ruin your business relationship with the customer. In saying that, if they don’t pay invoices for months on end, you probably don’t want to be dealing with them anyway.
Invoice financing is a great way of relieving the cash flow issues that come from unpaid invoices. You’ll still have to chase customers for payment, but you’ll be able to pay bills and purchase stock in the meantime.
By using an invoice financing service, businesses can have the value of their invoices paid out immediately. When the customer pays the invoice, businesses repay the invoice financing company, plus a small fee.
Covering overheads is one of the biggest pressures businesses face in the time it takes to receive invoice payments. This is where invoice financing helps cash flow and keep your business running.
The main benefit of invoice financing, as mentioned above, is enabling businesses to get cash flow before customers pay invoices. When you use FundTap for invoice financing, there are other advantages too:
Find out more about how invoice financing works with FundTap, or check it out for yourself with a free demo today.