Business solutions: How to effectively avoid payment delays and problems
Running a business surely has a lot of rewarding moments, but it also comes with its own share of frustration. One simple, yet common example is having to deal with slow-paying clients. Everyone knows that getting paid is the most satisfying aspect of business transactions; it signals the end of one project or phase and the start of another. So, imagine the agony of having to get through the work and finalize it, only to have your payment delayed! Talk about getting robbed of all your happy hormones.
Unfortunately, statistics show that up to 80% of small businesses struggle with receiving payments long past their due dates. Whether the late payment is the fault of the client or other issues, here are a few business solutions you can implement to effectively reduce and avoid payment delays and problems altogether.
Know your prospects
Before you jump on signing the contract, try to take the time to know your client. Not only in the sense of knowing the kind of business you’ll do together, but how other companies view them. Do your research, ask your contacts if they’d previously worked with those prospects, and check online reviews about them. If you come across any complaints concerning failure to pay, payment delays, or lack of commitment, you should seriously consider declining the offer.
Set payment terms in advance
Once you’re sure of the client’s work ethic, you can proceed as planned. Now, the only thing you’ll need to do before commencing the project is to sign the contract, in which you can’t forget to add the payment terms. Failing to set payment terms in advance is one of the main causes of delay and issues down the road. Most projects are divided into milestones according to the action plan, so how about dividing the payment according to those milestones as well? Additionally, you should add payment duration and time limit, both of which will also be closely linked to the project’s timeline.
The concept is pretty straightforward: the more organized your workflow, the more seamless your cash flow. Luckily for you, there are dozens of accounting tools you can use to streamline payment in today’s digital world. Instead of limiting your clients to one payment method, diversifying their options will make them more likely to commit to your payment terms. You can use one software to take payments online, get your registration list, set your sessions, and even update your clients’ information. Moreover, you can experiment with the software to set different packages that clients can conveniently pick in advance. Automating the invoicing, payment, and client management processes will save you hours of headache, effort, and resources that you can put to much better use.
Ask for a deposit
There are times when payment delays happen for unforeseen reasons, and there are other times when you’re in need of instant cash. A good businessman should always prepare for these unpredictable times, and asking for a deposit before commencing the project is one effective risk management tactic. A good place to start would be a 40% deposit, then 40% divided over the milestones, and a 20% once the project is handed over and finalized. This is especially helpful for freelancers who need an upfront payment, whether as an assurance or to get the materials needed to work on the project.
Award early payment and penalize late payment
Let’s say you’ve done your research, and while the prospect looks completely legit, they have their own rules to abide by that will impact early payment. For instance, high street retailers and supermarkets are known for their exceptionally long payment terms, which may even exceed 90 days. In these cases, you can file the original invoice that’s due on a set date, yet offer a 3% discount for early payment – say within 30 days. Conversely, you can also set a late payment penalty if the client exceeds a certain time limit without paying. If the client exceeds 30 days beyond the time limit, you’ll be better off not working with them again.
As if completing your projects to the client’s specifications wasn’t hard enough on its own, slow-paying clients have the ability to rob you of the instant feeling of satisfaction you usually get after achieving your milestones. Thankfully, you get to choose your clients and set your own payment terms to limit these delays. Additionally, you can organize your workflow by investing in good accounting and billing software. Needless to say, it’s also important to keep everything organized to prevent delays resulting from technical or clerical issues.