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How To Ease Cashflow Problems

Apr 18, 2008
One of the most common business problems is when you have done the work, but people are being slow to pay you. You can get behind with bills and be short of money to invest in your business. Understandably, this is an annoying situation. However, there are a few ways to improve the speed at which your customers pay.

Remember: You are a Credit Provider

Work + Invoice = Credit

Since you are offering them a credit service, you should consider running a credit check on the customer before you start work if the bill is going to be high. This will show you whether the company/person you are about to do work for is in trouble. It can also help avoid lots of problems later on. You can usually run credit checks online for next-to-nothing.

Give Invoices a Due Date

One mistake many home businesses make is to send invoices that have a fancy layout that states how much the customer owes but does not contain any direct instruction as to when the invoice is due. The result? The customer decides your invoice goes to the back of the pile with the other unimportant bills.

To avoid this, give your invoices a due date. Set the due date two or three weeks from the date of the invoice. Make sure you highlight it. People will see your deadline and realize you mean business. Your invoice is now in the dated pile with the real bills, and you will get your payment sooner rather than later. If you do not, a follow-up phone call referring to the late payment will usually do the trick. Almost no one refuses to pay if you confront him/her directly, but they will if they think they can get away with it.

Some places might even let you charge interest or fees on money you are owed by simply putting a due date on the invoice. Check your local laws.

You Could Try Debt Factoring

This is when you sell your invoices to a third party who specializes in administration and collection. They give you the money for the invoice up front instead of you having to wait for the customer to pay.

If you try this approach, just remember that the company is going to charge a percentage for the invoice they are paying and they are probably not treating your customers as you would treat them. It might be best to only sell invoices to debt factoring companies when the customer has not paid by the due date, letting the company act more like a collection agency.

Collection Agencies

You should always talk to the customer before you take this route. If they are not paying, chances are there is a reason. You might be about to force them out of business. On the other hand, they might just be forgetful. In any event, be certain the customer knows you are speaking with a collection agency. This might make them decide to make payment arrangements of some kind.
If your last resort is to sell the debt to a collection agency, it will cost you about 10% of the debt. The collection agency will try everything to intimidate your customer into paying, ultimately taking them to court if necessary. Make sure you check out the agency beforehand; you do not want them to be doing anything illegal.

Be Prepared to Settle.

At some time or another, you might end up being owed money by a business that is in financial trouble. You are just one in a long list of creditors, as everything falls down around them. In this situation, you need to be prepared to settle with them for less than the original invoice or risk getting nothing. It is a bad situation, but it is better to give them a break and get some money than pushing them further into bankruptcy and getting nothing.
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