4 Pro Tips for Preventing Invoice Issues and Payment Delays
For small and fast-growing businesses, cash flow is a make-or-break issue. These pro tips from AR Funding will help you lay the groundwork for faster, smoother invoice payment.
When cash is tight due to growth or expansion, a payment delay on a single order has the potential to jeopardize your ability to cover basic business necessities, such as payroll, rent, or raw materials.
At AR Funding, we have helped business owners accelerate cash flow for more than 20 years, and part of that process involves proactively addressing issues that often create payment delays. In this article, we share four of our best practices for ensuring invoices are paid on time and in full.
Get to Know Your Customer
Acquiring a new customer is exciting, but before you finalize the payment terms, it’s a good idea to perform some due diligence in order to get a better idea of who you’re forming a business relationship with.
As an invoice factoring expert, AR Funding has access to a wide range of business and credit resources that we use to build a detailed risk profile of each customer our clients do business with. Conducting that level of due diligence may not be practical for the average business, but there are less resource-intensive ways to evaluate your customer’s creditworthiness:
If the customer is a public company, you can find details of their financial history and current financial profile online. Start with a Google search to collect as much information as you can that way, then use Yahoo Financial to seek out the company’s financial statements and analyze its credit-worthiness.
If the company is private, you can order a report from companies such as Dun & Bradstreet, Credit Safe, or Experian, to name a few. A basic credit check can cost upwards of $100, so may not be a realistic option if you have a high volume of new customers or if the average dollar amount is low. But if the new relationship represents a significant dollar amount, it’s worth keeping this resource in mind.
Start the Paper Trail Early
Many companies understandably want to make it as easy as possible for their customers to purchase from them. But while it’s a smart move to reduce friction in the purchase process, no business should begin fulfilling an order until there is a documented purchase order on file. Starting the paper trail as early as possible reduces the risk of misunderstandings later on.
While this is essential for new customer relationships, it’s also a best practice for purchases made by long-standing customers. A handshake agreement may be a friendly and convenient way to conduct business, but it can hurt you in the long run. Without that purchase order on file, there is nothing to prove that the customer placed a legitimate order to receive those goods or services.
Document the Delivery
Just as you need to document the order the customer places for products or services, you need to document the delivery as well. Until those deliverables have been handed over to the customer and the transaction has been documented, you haven’t closed the loop and fulfilled the terms required for payment.
Let’s look at what you need to document at this critical point:
For physical products, you might use a third party such as FedEx or UPS, deliver the product in a company vehicle, or have the customer pick it up on site. Regardless of the mode of delivery, you will want to ensure that the customer signs a document that includes, at a minimum, the delivery date, the name and signature of the person who delivered the item, and the name and signature of the person who inspected, accepted, and signed for the item.
This provides proof that the item was delivered and that it reached the customer in an acceptable condition which, in turn, enables you to issue the invoice and improve your chances of being paid on time and in full.
For services, the terms of service are usually covered by an annual contract, but it’s a good idea to ensure the customer is approving employee time-cards to guard against the potential for fraud and errors. For staffing firms, in particular, using time cards can not only prevent fraud among employees but provide proof of service in cases where the customer disputes charges listed on the invoice.
For further reinforcement, when you email the invoice, you can include instructions for the recipient to confirm by return email that the product or service was delivered and accepted on a specified date. This provides an additional source of documented proof in the case of a dispute.
Check up on the Status
Even with a clear paper trail in place, there’s no guarantee of prompt payment. Customers may have the best of intentions, but invoices can easily get lost or waylaid.
Many businesses feel uncomfortable contacting the customer until an invoice is significantly overdue, but it’s far better to reach out sooner. This type of outreach doesn’t have to feel pushy; in fact, you’re doing the customer a favor by providing a reminder, especially if there is a financial penalty for late payment. At AR Funding, we make a friendly courtesy call to our clients’ customers no later than 10 days after an invoice comes due to ensure that the customer has the information they need to process the transaction and that the invoice is queued for payment.
The reality is that your customers are busy and mistakes happen. By reaching out sooner rather than later to check in with them, you can resolve any confusion and pre-empt payment delays.
Smooth the Path for Faster Payment
Ultimately, it’s cash flow, not sales, that is the true lifeblood of your business. But while entrepreneurs and business owners may be skilled at producing and selling valuable products and services, they’re not always skilled at managing the payment process. Luckily, it doesn’t take much to smooth the process and avoid potential issues.
By getting to know your customer’s payment history, establishing a strong paper trail for the order and delivery of goods and services, and following up on payment sooner, you can improve cash flow and protect the financial health of your business.
Accelerate Payment with AR Invoice Factoring
Need to get paid sooner to finance business growth? Learn how AR Funding can help you accelerate cash flow by turning your invoices into cash sooner.