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Getting customers to pay on a timely basis

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For many businesses, getting their customers to pay on a timely basis can be a bit of a challenge. Fortunately there are a few options available to help you make your customers pay faster.

Some businesses have added a clause to their invoicing methods and inform the customer up front of a penalty for late payments or a reward for timely payments. The early payment discount plan is that you will knock of a certain portion of the total amount due if you receive payment within 5-10 days after the date of the invoice.

Some companies approach their clients directly at the time of purchase and ask for credit card information instead of purchase order or invoiced payments. If you have ever called in to pledge to St. Jude Children's Research Hospital, the phone agent will ask you for a credit or debit card over the phone and explain that using a credit card will actually put more money to work now and save on bank expenses. This is a great strategy as they are able to obtain their money today instead of in 30 days or even later.

Place a late payment clause on your invoices. Inform your customers up front of the allotted time they have to pay without incurring a penalty. A common practice used is to inform them that after so many days, their invoice will be turned over to a collection agency that will make the customer responsible for all attorney's fees, court costs, and related expenses if the invoice is not paid in a timely manner.

Another preventative measure you can take is to have good cash-flow management.
Cash-flow is the biggest factor for having a successful business. Having a well defined financial management plan will help to efficiently and effectively manage the activities related to cash in the company. Review you cash-flow often, know what your accounts receivables department is doing to reduce the pending payments, and discuss options with your sales department to improving the payment at the time of the sale. If you are being up front with the customer at the time of the sale, they are likely to pay on a timely basis.

If you are still having problems collecting on past due invoices, you should consider outsourcing your collections to another company. A popular method used by several companies is factoring. Factoring is the process of selling your accounts receivable invoices to a third party who then is in charge of collecting on the invoice. The agents in charge of collecting are called factors

You should consider factoring when you notice your cash flow starting to decrease and your past due invoices are piling up. Factoring will cover the costs to pay wages and pay your creditors when you do not have the income to provide for these essential things.

Here are a few reasons why you should consider factoring:

  1. Cash Flow - Factoring allows you to sell invoices to a third party at a discount, thereby giving you money now to pay your expenses.

  2. Financing alternative - Factoring is a powerful funding tool for supporting the growth of your company.

  3. Cash on hand now - Factoring allows for funds to be in your account quicker than waiting for invoices to be paid.

  4. Professional Visibility - Factoring allows for invoices to be collected in a professional and consistent manner.

  5. Success Factor - Factoring is a step up the financial ladder to improving your overall cash flow.

  6. No funding limits - Factoring does not have a limit on qualified invoices.

One of the great things about factoring is that it does not tie up assets outside the business and does not involve repayment of debt at some future point in time. Factoring is a great way to get your business back on track and generate positive cash flow again.

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