Accounts Receivable: What to Do If Your Customers Aren't Paying You?

3 Jan
Strategies for accounts receivables

While many businesses exchange products and services for payment at the point of purchase, there are many businesses that put in the work to create or provide a service and provide credit to the customer for payment. For example, a freelancer may produce work for a client throughout the month, and then submit at an invoice for that work at the end of the month.

When you do business with a customer, you expect to be paid for your labor, product and/or services. But, what happens when those payments are late, or don’t come at all?

When missed payments add up, it can create an immense cash flow gap for your business, and impact your overall operations. While you can’t guarantee that every single customer will pay a bill on time, there are a few precautionary measures you can take to reduce these instances.

Here are our four strategies to mitigate issues with accounts receivables:

1. Establish the relationship and expectations

Before providing credit to a customer, do your research on the client before making an agreement. You can approach this a few different ways, including:

  • A google search on their name
  • Asking for references
  • Requesting a copy of their personal and business credit reports, and
  • Researching any complaints against them with the Better Business Bureau

Once you’ve done your research and are comfortable offering credit to the client, start the relationship with them. Set clear expectations with them about the arrangement before you begin to provide services or products to the client. A strong, positive customer relationship is built on trust, respect and full transparency. Putting everything on the table right away helps to establish this trust, and sets clear payment expectations for your client from the beginning.

Consider establishing a system that is backed by a policy or terms of service. It should set clear expectations with respect to payment schedule, terms, preferred payment, scope, deadline, and late payment policy. A best practice is to have a sales order contract. Be sure to answer any questions your customer may have during this process.

When expectations are set up front, both you and your customer will be fully aware of what your relationship will entail moving forward.

2. Ask for payment ASAP

Getting paid by clients starts very early in the sales cycle. If you’re utilizing invoices, be sure to send the invoices as soon as the job is completed, and stay on top of it until the invoice is paid and closed out.

Alternatively, if an invoice system seems too risky for your business, ask for full payment before starting any work. The only way to prevent a non-payment is to bill for the work upfront.

If consumers feel hesitant to submit payments before receiving completed work, encourage them to read testimonials or reach out to previous customers to provide reassurance of your dependability.

You can also charge a deposit for the intended service or product before starting any work. This strategy gives you the freedom to decline customers who don’t seem like a good fit. If there is an issue with down payments, there will likely be issues with future invoices.

In any case, if the client doesn’t pay after the agreed time period, stop providing the service or work immediately until the situation is resolved.

3. Get help from your accountant

Your accounting team can help you identify the gaps and efficiency of each step of your Cash Conversion Cycle (CCC) and develop processes to improve your cash flow.

Your CCC is the process in which your company purchases inventory, sells the inventory on credit (creates an account receivable entry) and then collects payment on it. The cycle measures how long your business will be deprived of its cash as it waits to sell its inventory, or how long it awaits payments from customers. To keep your cash flow at a healthy level, you should aim to have a short CCC.

4. Be persistent!

You shouldn’t immediately assume your customer is trying to evade payment because they didn’t pay on time. There are many different reasons a client may miss a previously agreed upon payment. Sometimes it is as simple as forgetfulness, or more complex in nature.

Send them an email reminding them that the invoice is past due every other day until you get an explanation for the tardiness. Remember to keep the tone friendly yet firm. Use this correspondence as an opportunity to ask if they have any concerns with the product or service that you provided, or issues with the payment process.

If they aren’t responding to e-correspondence, give them a call. Remember, you don’t have to be aggressive, just don’t stop asking.

With these strategies at the ready, you’ll nip non-payment issues in the bud, and have a plan in place when a customer does miss a payment. If you need additional help with accounts receivables strategies or other business support, get in touch with us today. We’ll help you keep reaching higher with your business to achieve your goals.