Managing Accounts Receivable: How to Get Clients to Pay You Faster

Struggling with late invoice payments? You’re not alone. According to QuickBooks, 56% of small businesses are owed money from unpaid invoices. Those unpaid bills? They can have a ripple effect on your business, from poor cash flow management to delayed growth. But here’s the good news: you can minimize late payments by managing accounts receivable properly.

Here’s how to get clients to pay you faster, and how late payments affect your cash flow.

How Late Payments Affect Your Cash Flow

When customers or clients are late to pay their invoices, the effects go far beyond just delayed income. It affects your entire operation and the decisions you make.

• Cash flow problems arise fast. When invoices go unpaid, you may have trouble covering your basic operational costs, like payroll, project materials, vendor bills, utilities and other operating expenses. Even short delays can set off a chain reaction across your business.
• Growth slows. Without reliable income, you may delay hiring, put off purchasing new equipment or turn down valuable projects. Eventually, these missed chances make it harder to reach your long-term goals.
• Relationships with vendors are affected. When customers delay invoice payments, you may have to delay vendor payments. In turn, vendors may tighten terms or require early payments.

Productivity also suffers in the long run. Late payments have to be tracked, reminders must be sent, and team members have to check in on customers regularly. All of this time pulls you away from more high-value tasks and can even lead to burnout if your team is overworked.

The effects of late payments are far-reaching. But how can you avoid this scenario?

Managing Accounts Receivable: How to Get Clients to Pay You Faster

While you may not be able to avoid late payments entirely, there are steps you can take today to minimize them.

Here’s where to start.

Send Invoices Immediately

When the work is complete or an order is shipped, how long do you wait to bill clients or customers? Is it a day, a week or even longer?

That delay may be costing you big time. If customers aren’t getting their invoices for a week or more, you’re adding several days to your Days Sales Outstanding.

Don’t wait. Instead, send invoices immediately. The quicker they’re sent out, the quicker you will receive payments.

Better yet, automate the whole process. Tools like QuickBooks Online allow you to invoice and bill automatically, making it even easier to get invoices out on time.

Depending on industry standards, you may even be able to get paid upfront for your work.

Make it Easy to Pay Invoices

What payment options do customers or clients have when they receive your invoices? If you’re struggling with late payments, it may be because it’s inconvenient to pay you.

The more inconvenient it is to make payments, the longer clients will put them off.

So, don’t make customers jump through hoops to pay you. Make the process as easy as possible.

• Accept multiple forms of payment (credit card, check, cash, digital wallets, etc.)
• Allow customers to pay online or over the phone

The more options you provide, the easier it will be for customers to satisfy their invoices.

Send Automated Payment Reminders

It may not be that clients don’t want to pay you; they may just have forgotten about your bill. Sometimes, a little nudge is all it takes to get them to take action.

Schedule automated payment reminders after the payment is due. Weekly reminders will keep your payment at the top of mind, increasing the odds of them making payments.

Most accounting or invoicing software allows you to set up automatic reminders, making this process even easier.

In fact, QuickBooks Online allows you to do this right on the platform. You can even customize your reminder message to make it more personal and the frequency at which you send out reminders.

Offer Discounts for Early Payments

Give clients an incentive to pay their invoices ASAP. Offer discounts to those who pay early. Discounting your services by 5-10% is a small price to pay for getting your cash faster.

But be cautious here. It’s crucial to make sure that you’re not eating too far into your profit in order to give these discounts. Price your products or services accordingly if you plan to continue offering early payment discounts.

Plus, discounts may improve customer retention. Research has shown that boosting retention rates by 5% can increase profits by 25-95%.

Implement Late Payment Fees

If incentives don’t work, implementing late payment fees may. Penalties can act as a deterrent and encourage customers or clients to pay on time.

Just make sure that you’re disclosing this fee upfront and in your invoice’s terms and conditions. Additionally, send out reminders to customers before you start charging them interest.

The Takeaway

Late invoice payments affect more than just your cash flow. They affect your decision-making and other areas of your business.

Taking steps to encourage clients to pay faster can help keep your cash flow steady and support your growth. Use this guide to make meaningful changes to your billing processes today.

To learn more about how to grow your business or how we can help you with your accounting needs, schedule a consultation now!