How To Preserve Cash Flow By Dealing With Unpaid Invoices
One of the most frustrating and challenging experiences for any small business owner is dealing with customers not paying on time. Outstanding invoices present serious trouble for your cash flow. In turn, that may mean difficulty paying your expenses and missed opportunities to invest in your continued growth.
If you want to ensure your business’ lasting financial health, you need to address those unpaid invoices. Below are some strategies for handling this situation.
Follow Up With the Customer
In many cases, simply prompting the customer about the invoice is enough to work out payment. However, being overly aggressive or accusatory can cause more harm than good. Before you reach out, check when the invoice was issued and when it was originally due. Also, review the customer’s payment history and see if they’ve been late paying before.
Contact the client and ask for an update on payment. Try to be polite but firm. Give them a chance to explain why they haven’t paid but make it clear that payment is important. They may simply indicate that it was a mistake and they will pay shortly. Other times, they may ask to work out split payments. If you expect to work with them in the future, try to be accommodating within reason.
Be careful about using a debt collector to get the invoice paid. This should generally be a last-ditch effort because there is a chance it could seriously harm your relationship with the customer. Of course, sometimes customers clearly have no intention of paying if you let them get away with it.
Using a third-party collector, attorney or accountant means that you don’t need to personally contact them repeatedly. Additionally, it can be helpful if you reach the point of needing to file a lawsuit. Keep good records of all communication.
Covering the Gap
If you aren’t able to get the customer to pay immediately, either because they asked for extra time or because they were unwilling to pay, you may want some help covering the gap. A merchant cash advance, term loan or accounts receivable financing agreement may help you. These options can give you cash now to keep your operations running smoothly while you collect on your invoice.
Understanding how to manage your cash flow when you have unpaid invoices can help you navigate a tricky situation for your business. Sometimes outside help is the best way to proceed forward.