cash flow

Your cash flow is the lifeblood of your business. By keeping as much cash on hand as possible, your business has the funds it needs to cover daily operations and grow. While many things impact cash flow, your invoicing practices are certainly among the top concerns.

Your Invoicing Practices Set the Tone of the Relationship

Before a customer even signs on for services, your invoicing practices will set the tone. A straightforward billing plan with easy-to-understand terms gives customers confidence that they know what to expect from your organization. In this sense, you may even win more business by alleviating concerns. It also shows customers that your business is serious about collections and encourages a positive mindset about prompt payments.

1. Regular and Immediate Billing Gets Cash in Quicker

Rare is the customer who pays prior to getting an invoice. In traditional companies, bills are often paid only on a monthly or bi-weekly basis. This means if you’re only billing once each month (or worse), you could be waiting two months for turnaround on payments. With immediate billing or shorter billing cycles, you’re ensuring your invoice is at the top of the stack as soon as they process.

2. A Specified and Short-Duration Due Date Makes Expectations Clear

Despite the importance of keeping cash flowing into a business, many companies fail to provide a due date for payments, leaving it up to the customer to decide when to pay. Unfortunately, this practice will place your invoice at the bottom of the stack. Equally, some companies offer 45, 60, or 90-day payment terms in an effort to be consumer-friendly. Most businesses should expect payment within a week of invoicing, with a handful extending the payment terms to 30 days.

3. Prompt Follow-Ups Reduce Delinquent Payments

With 92% of businesses reporting late payments, per research conducted by Atradius, and roughly 48% of B2B invoices coming in after their due date, delinquency is a major issue. One of the biggest reasons companies fail to pay in a timely manner is because they’ve either lost the invoice or payment has slipped their mind. By following up regarding an unpaid invoice with reminders that a payment is coming due and sending notices once it becomes delinquent, your invoice stays at the forefront of their minds.

4. Penalties and Rewards Encourage Prompt Payments

Depending on the nature of your business, rewards can be used to incentivize prompt payments. Oftentimes, companies create a “good payer” discount or knock a small percentage off a bill if paid early. This is a positive way to build lasting relationships and encourage swift payment. On the other hand, penalties for exceeding the allotted timeframe will also help prevent customers from delaying payment, as they’ll want to keep as much cash on hand as possible too. This method is especially helpful with companies that may be strapped for cash and need to decide which bills to pay and which to wait on. However, it’s also worth noting that more than a quarter of businesses actually use delayed payments as a form of financing, knowing they won’t have the cash on hand to pay promptly. A clear payment policy agreed to in advance paired with a late-payment penalty discourages this practice.

5. Providing Payment Options Makes Processing Simpler

The structure of billing departments will vary based on a number of factors, from the length of time a company has been in business to how many employees are on staff. You may find that smaller or older companies are unprepared to make digital payments, whereas some will pay much quicker if they aren’t required to pull out a checkbook and sign. By providing a myriad of options, ranging from online to phone and mail, you’ll naturally remove a barrier to payment.

6. Automation Reduces Your Stress and Overhead

If you’re still managing your invoices on outdated legacy software or even manually tracking costs through spreadsheets, you know all too well how challenging it can be to sort everything out come invoice day. Moving to modernized automated billing eliminates these challenges and takes care of the follow-ups, so payments come in faster with less effort and fewer labor hours.

7. A Vetting System Reduces Unpaid Invoices

Unfortunately, a small percentage of customers will never pay their bills. It is possible to reduce this by only offering delayed billing to those who have established credit and requiring payment at the time of delivery or service for those who do not have a proven track record.

8. Factoring Puts Cash in Hand Quicker and Makes Invoicing Easier

Interestingly, about half of all businesses have no idea what they’re spending on billing and collections. This is an obvious concern for money flowing out, but it’s also a sign that invoicing practices are not streamlined or strategic. Factoring, a method which involves selling invoices to a third-party company, takes care of all the aforementioned billing concerns and gets payments to the business quicker—often within a matter of hours. Considering the average invoice in North America is not paid for 61 days, working with a factoring company can put working capital in the hands of businesses an average of nearly two months quicker than traditional billing practices.

If improving cash flow is important to your business, and you’d like quicker payments, find out if factoring is right for you. Many companies find that accounts receivable financing through a reputable and established factoring company enables them to continue to meet business demands without using credit or taking on expensive small-business loans. To learn more about factoring or to take the next step toward improved cash flow, get an instant factoring rate quote today.