How To Preserve Cash Flow by Dealing With Unpaid Invoices
Unpaid invoices can create a plethora of problems for your business. You need money in you coffers so you can pay employees, order supplies and have money saved for equipment that needs to be replaced. There are ways small business owners can avoid the pitfalls of having unpaid invoices piling up. It’s important to research your clients and then put down ground rules for receiving payments. Doing some legwork before accepting a client may prevent financial stress in the future.
When soliciting clients for your business, it’s important to know the type of client you’re about to select. Since you don’t want to accept a client and then get blindsided with unpaid invoices, it would behoove your business to check a potential client’s commercial credit. These reports are relatively inexpensive, and they give small business owners insight into the payment habits of a potential client. When you review this report, and you notice a potential client always makes timely payments to vendors, there is a good chance that the new client will be responsible when it’s time to make a payment to your business. By taking this action, you may save your company from bad debt and financial hassles down the road.
Before bringing a client on board, it’s a wise move to have an attorney draft a contract highlighting all financial obligations. A contract should spell out all payment details, such as payment dates, late penalties and how to handle a disputed claim. Taking this action will help eliminate any gray areas when it comes to making payments.
It’s important to send out invoices promptly when the work is complete. The sooner your client receives the invoice, the sooner you can expect a payment. It’s important for small business owners to follow all of the details in the contract when sending an invoice. If your client is expecting the invoice to go to accounts payable, make sure you have the correct delivery information. If the invoice were to go to the wrong department, your payment could be delayed.
Dealing with unpaid invoices can be stressful for small business owners, especially if they are just starting a business. The key to preserving cash flow is keeping unpaid invoices to a minimum. Explaining payment obligations to clients at the beginning of your business relationship is crucial. When expectations are explained both verbally and in writing, you are setting the groundwork to receive your payments when they are due.