Chasing clients for payments every month can be unnerving. Overdue client payments can lead to financial stress and strain on your business. However, by setting clear payment terms, following up with clients, offering payment plans, and managing cash flow carefully, small business service professionals can overcome these challenges and continue to grow their businesses. Read this blog for actionable insights and takeaways to build better invoicing and billing processes.
Small businesses and service professionals in accounting firms, legal firms, and marketing agencies can take several precautions to avoid late payments from clients. We suggest proactive best practices you can implement to minimize the risk of late payments and ensure the healthy cash flow you need to operate and grow your business.
Set clear payment terms
In your agreement, set clear payment terms, including payment schedule, due dates, payment methods, and penalties for late payments. During the signing of the service agreement, come to an understanding of payment terms.
Send invoices promptly according to your client's payment schedule. It is best to use an automated invoicing tool. Cone Proposal-to-Payment helps you automate invoicing for the services rendered in your terms and conditions. We will identify billable hours and other expenses and keep it ready-to-be-invoiced on review. You can evaluate Cone Proposal-to-Payment free software for proposal and AR management.
Follow up on overdue payments
Articulate a communication workflow to automate payments. Did you know, according to a report by Xero, an online accounting software company, small businesses that send automated invoice reminders get paid an average of 38% faster than those who don't!
Gear up and start sending emails and messages to clients with reminders about payments. Make it a part of your every month routine communication. When you make it a prompt task, it builds ownership for the person receiving it. Don't worry. Here's something you can send as a message for overdue payment accounts.
Hey [Client Name], your account has an outstanding balance. Please settle the payment as soon as possible. Let us know if you have any questions or concerns about your invoice. Thanks for your help in keeping our business running smoothly! [Your Name]
For clients who have not paid over 30 days, you can send an official email along the lines of
Subject: Overdue Payment Reminder for Invoice Number [Insert Invoice Number]
Hello [Client Name],
We hope this email finds you well. We wanted to remind you that [Invoice Number] is now past 30 days overdue. We kindly request that you settle the payment as soon as possible to avoid further inconvenience.
Please let us know if there are any issues or concerns that are preventing payment from being made. We're always happy to help.
Thank you for your attention to this matter. We appreciate your business and look forward to continuing to work with you.
Offer multiple payment options
Giving a choice to pay through multiple payment options allows the client to pay on time in their preferred payment method. Be prepared to accept credit card payments, online payments, or sometimes cheques.
Consider payment restructures
As a last resort, consider restructuring original payment terms, giving flexibility by splitting the payment lumpsum. Or discount on services to match the restructured payment.
Proactively, we recommend requesting partial payments upfront, but this might get difficult in case of billable hours and accountant services. Having automated software to send invoices and collect payments would mitigate that challenge. Plus side? Remember to invoice another service or an hour!
Use software to automate and integrate
Post-covid "digitization" was indeed witnessed. A study by QuickBooks in 2021 found that 68% of small businesses have shifted their operations online in response to the pandemic. It's safe to say that your peers automate their processes and workflows using intelligent, intuitive software. Some software/tools that can elevate your business operations are:
- From sending proposals to collecting payments: Cone Proposal-to-Payment is a modern software that automates sending proposals and CPQ tool to the electronic signature tool and automated invoicing, billing, and payments. All are integrated into your CRM and financial books.
- From CRM to client engagement: Cone Business Management Software enables small businesses with CRM to store and update client details, a unified inbox, and an email tool to centralize all client communications, of course, analytics to track productivity and business health.
Download your free copy of email, messages, and calls reminder communication templates to your streamline client communication.
How to handle writing off bad debts
Now, you still have some challenging clients that just will not or cannot pay, and sometimes you have to write off payments that becomes bad debt. But remember, writing payments off should not become a practice, and it can harm your business in multiple ways.
- Negative impact on cash flow: If you are not getting the money you worked for, it will negatively affect your finances and hinder your ability to pay employees, bills, and everyday operations.
- Difficulty tracking debt: You are only creating more debt by writing off all unpaid dues. It will be harder to analyze unrealized payments, manage outstanding debts to be collected, and, overall, track business performance.
- Setting a tone to follow bad practice: When you have already given the option to write off payments, sometimes this can be misused and make it harder to enforce payment terms.
However, sometimes we all have to. Remember these essential pointers to minimize the impact of writing off payments on your business.
- Review your payment terms: Review your agreement and review the current times. If necessary, update and enforce a new one to protect you and your business.
- Take legal action after a certain point: This takes time and money. We suggest you take legal action if a significant sum is owed. You can start by sending a demand letter and hiring a collections agency in this case.
- Keep your books updated: Lastly, ensure you write off your bad debt correctly.