How to Handle a Slow Paying Client
Slow paying clients can be a major problem for companies; consuming time, resources and jeopardizing the financial stability of many small and medium sized businesses. Like it or not, the current recession and slow recovery have forced many businesses to live from invoice to invoice. A late payment can have a negative effect, forcing the company to delay payroll or critical supplier payments.
The best way to handle a slow paying client is to prevent the situation from happening in the first place. It's a lot more effective to spend your resources ensuring clients pay on time, rather than chasing slow payers. This can be accomplished fairly easily.
There are two things you need to do to make sure commercial clients pay one time.
First, you need to check their commercial credit rating / payment history - and only give credit terms to those that have an acceptable credit report. This can be done by using one of the many business credit bureaus that exist. Most reports are relatively inexpensive.
Second, you need to have a good invoicing and follow up procedure in place. This will take some work but will have a substantial payoff. Be sure to send invoices to clients in a timely fashion and be sure to verify that they received the invoice.
If your clients won't pay their invoices sooner, your second option is to finance your invoices using invoice factoring. The factoring financing advance can be used to cover your business expenses, while you wait for your clients to pay. The transaction with the factoring company is settled once your client pays the invoice in full.
Factoring has two advantages. First, it can improve your finances, especially when combined with a good invoice management program. Second, and perhaps more importantly, it gives you control of your cash flow, eliminating the guesswork of when clients will pay. This enables business owners to spend more time running their business and less time chasing invoices.
Qualifying for factoring is relatively easy. You need to have clients with a good commercial credit rating and good invoicing practices. Additionally, your company has to be free of encumbrances.
By Marco Terry
Image by Agnieszka Pastuszak - Maksim