The True Impact of Unpaid Invoices on Your Bottom Line | Is Invoice Factoring a Good Idea? | How to Handle Unpaid Invoices | 7 Tips for Avoiding Unpaid Invoices | Best Practices for Managing Unpaid Invoices | In Conclusion
As a small business owner, one of the most frustrating experiences is when a client doesn't pay for your products or services. Not only does it affect your cash flow, but it can also damage your relationship with the client.
In this blog, we will provide you with some tips on how to handle the situation when clients don't pay, including how to prevent it from happening in the first place, how to approach the client to request payment, and what legal options you have at your disposal. With these tips, you can effectively manage unpaid invoices while maintaining positive client relationships.
When a business doesn't get paid for their work, it can cause big problems beyond just losing money. Here are some things to think about:
1. Cash flow: Not getting paid can make it hard for a business to pay bills, employees, and grow. This can lead to money problems and even make the business fail.
2. Time and resources: Trying to get paid can take up a lot of time and energy that could be spent on other things. This can make the business less productive and profitable.
3. Customer relationships: If a business doesn't get paid, it can make customers unhappy and hurt the business's reputation. This can cause customers to go somewhere else, which means the business loses money and opportunities.
4. Legal action: Sometimes, a business has to take legal action to get paid. This can be expensive and take a lot of time. It can also hurt the business's reputation, especially if it has to sue a customer it's worked with for a long time.
5. Creditworthiness: Not getting paid can make it hard for a business to get loans or other kinds of money in the future. This can make it hard for the business to grow or get through tough times.
To stop these things from happening, businesses should have clear rules for getting paid, ways to make sure people pay, and good communication with their customers.
Have you ever wondered what would happen to your sales if you were able to reduce your accounts receivables by 50% or even 10%?
Using the formula below, simply add in your current total value of your accounts receivable (in dollar amount), then add a percentage that you’d like to reduce your AR by.
That number you get shows you how much more in sales you achieve by taking active steps to reduce late or no payments by your customers.
If you're a business owner who needs money fast, invoice factoring can help. You sell your unpaid invoices to a company for quick cash. Here are some pros and cons to consider:
Overall, invoice factoring can be good if you need money fast, but it's not a good long-term solution for your business. You should use it with other ways to make money and save it.
If you’ve not been in business long or have only recently begun having an issue with customers not paying, the situation can be tricky. Here are tips for handling unpaid invoices professionally.
If a customer hasn't paid you yet, you need to keep asking them nicely for what they owe. This means you need to be patient, act professional, and keep good records.
Small business owners should make a plan for how often they'll ask for money owed, try different ways of asking, and maybe offer incentives to the customer. If the customer still doesn't pay, the business owner might need to take legal action. But before it reaches that point, regular reminders can go a long way.
It’s easy for customers to ignore or miss emails or messages. More importantly, the stress that unpaid invoices places on you and the customer can cause you to read into the silence.
So before you jump to conclusions or let your client get away, pick up the phone and make the call. Have an adult conversation with them where you can be direct and professional and get their immediate feedback.
If someone owes you money, don't assume the worst just yet. Here are some tips to handle the situation in a positive way:
So long as you’re documenting the situation, this step gives you a huge advantage. More importantly, you increase your chances of keeping good customers should you find out that some customers simply didn’t get your invoice in the first place.
If a customer can't pay all at once, you might want to help them by making a payment plan. You should make clear rules for the payment, check how much money your customer has, make a plan both of you agree on, write it down, and keep track of the payments.
If you have to, you can even leverage legally-binding tools, such as signing a new contract or working with a third-party lender.
By doing this, you can manage unpaid bills without making your customer unhappy.
Formal letters are essential if there’s even a small chance that you have to take legal action with the customer who hasn’t yet paid you. If all your attempts above do not work, it’s time to send the customer a letter stating what they owe and what other penalties they face should they continue ignoring your attempts to collect payment.
Ideally, have your attorney draft and send the letter on your behalf. Getting them involved in your situation gives you more options to use the force of law if necessary.
Of course it’s never okay that you do all the work and a customer won’t pay you.
However, don’t be afraid to notice ways in which your invoice process contributed to any unpaid invoices. They may be things you can do to improve your invoicing system and prevent these uncomfortable situations in the future.
Don’t ever assume that your customers “get it.” Put everything in clear terms on your invoices. As a business owner, you should include the following terms on your invoices:
It’s common for business owners to send invoice reminders on a weekly basis until the invoice is paid. Whatever frequency you choose, the important thing is that your reminders are constant. Most customers simply forget to pay bills unless you remind them regularly.
Sending out an invoice late is a sure-fire way to confuse your customers and risk not getting paid at all. Make it a point to send out an invoice as soon as you deliver your product or service as agreed.
The more secure options for payment you give customers, the greater the likelihood of you getting paid on time more often.
Email invoices are easy to miss, as they can get lost in overflowing inboxes or end up in spam folders. Texting your invoices (along with an email) is now commonplace and ensures that customers never miss them.
Many small business owners require customers to pay a deposit the moment they book a service. Especially if your work takes lots of time and money, an upfront deposit can establish a strong foundation where customers pay what is owed promptly.
If you allow customers more than two weeks to pay or payment plans, then consider offering discounts for paying in full before the established due dates.
A lot of business owners are nervous about asking for money. No one wants to have a full-time job as a bill collector, but doing what it takes to get paid is an uncomfortable part of the job.
Remember, if you don’t get paid, you won’t stay in business. Recognize that a customer who refuses to pay is a liability you can’t afford.
Most of the things we recommend in this blog - mobile-friendly invoicing, payment reminders, payment terms, etc. - are a piece of cake when you have the right invoicing software.
Source: GoSite
So consider investing in a tool that works for you and lowers the number of late payments you currently have to deal with.
While most clients are good people who have every intention of paying you, some will push the limits. So it’s imperative that your payment terms are non-negotiable, and you need to exert effort to enforce those terms.
Don’t avoid interactions with your customers. Increase your people and communication skills by making it a point to connect with customers every chance you get.
This earns you the respect to get paid when you ask. Also, it helps you understand should a situation arise where a customer - who is normally a great customer - may not be able to pay right away as they intended.
Not only will this lower your late payments, but it will boost your reputation and increase your word-of-mouth business because people love working with you.
As a small business owner, you want to have good relationships with your customers and avoid problems. But sometimes there are disagreements, especially about money. In those cases, it might be more important to get paid than to be right. Here's why:
So, while it's important to be consistent in all your business dealings, sometimes it's better to get paid than to be right. By thinking about the costs and benefits of a dispute, and focusing on cash flow, small business owners can deal with problems and keep their business healthy.
If you keep a strong paper trail (even an electronic one), it will be easy for you to recall what customers have told you, remind them of past agreements, and even offer evidence in support of a legal claim.
When a customer doesn’t pay you, there could be a million reasons why. And it’s important that you maintain a strong posture to stand by your payment terms while also being flexible for customers who failed to pay due to misunderstandings or unforeseen circumstances.
Either way, these tips will give you what you need to lower your number of paid invoices and grow your business.