There are several reasons why many new businesses don’t survive their first year. Some aren’t organized, others suffer from bad luck, and others still are unable to overcome financial issues. Such financial issues can be caused by delinquent payments. However, there are steps that your new business can take to get your invoices paid faster and improve your accounts receivable turnover ratio:
#1 Screen Your Customers:
Be more careful about who you do business with. Start by researching your client. If they have a bad reputation, then avoid working with them. If the complaints are about financial issues, then they may not pay you on time, if at all. Don’t offer credit without checking their credit report and their references. Proceed with caution if a client refuses to provide this information.
#2 Be Wary of Scams
The digital age has been a boon for small businesses. It’s easy to connect with customers across vast distances. However, this has also made it easier for scammers in remote locations to take advantage of inexperienced companies. Many small businesses have been left in financial difficulty by fraudsters disguised as legitimate customers.
Trust your instincts and be careful around a potential client that appears to be too good to be true. Be wary of companies that lack a website or a social media presence. If their email address leads to a dodgy website, then avoid working with them. Likewise, look for inconsistencies in their information. While some discrepancies are to be expected, if their business address is radically different from their PayPal, credit card, or bank address, then they may be misrepresenting themselves.
#3 Incentivize Timely Payments
Surveys show that most invoices don’t get paid by their due date. However, there are ways you can encourage your customers to pay on time without damaging your relationship with them. Start by having shorter payment terms. There was a time when businesses had one-month payment terms. Today, many have one to two-week payment terms, if not less.
You can also incentivize timely payments by offering bonuses. Give a small discount to customers that pay early. You may also provide extra services for free to such customers. Late-payment fees can also incentivize timely payments and improve your accounts receivable turnover ratio.
These simple solutions can get you paid quicker. Remember to have the terms clearly mentioned in your contract to avoid misunderstandings later.
#4 Be Organized and Detail Oriented
If you’re disorganized, then you’re unlikely to be paid on time. Remember to communicate with your client on email in clear concise terms to avoid confusion when payment is due. Provide your services and invoice them on time. Make sure that your invoice is correct and understandable, to avoid time consuming delays.
#5 Partner with a Good Debt Collection Agency
Despite your best efforts, you will face delinquent accounts. As a small business, you may not have the resources to train and run a collections department. You also can’t afford to partner with an agency that uses shady tactics. Instead, partner with a reputable company that understands that ethical debt collection is crucial to your business relationships and reputation.
These five tips can help improve your accounts receivable turnover ratio. With a little proactiveness your business can collect payments faster and use the extra resources to grow and improve profitability.