By: Angie Walters
Half of all net-30 invoices are paid late, according to a 2015 study by Fundbox, and for one-third of businesses, a full 20 percent of the value of their invoices is consistently more than 90 days overdue. Late payments can damage your business relationships, increase your workload chasing customers who won’t pay and, ultimately, starve your company of critical cash flow.
There are plenty of reasons why customers pay late: insufficient funds available on the payment due date, disputes over service delivery, the complexity of the payment procedure, and incorrect invoice information, to name just a few. How can you solve these challenges? Here are six strategies for decreasing late invoice payments for your manufacturing business.
1. Establish Clear Payment Terms
Whether you want your invoice paid in 10, 30, or 60 days, it is critical that you make this clear on the invoice and in your customer contract and business terms. To protect your cash flow, make sure that your net terms match those of your suppliers. For example, if you accept payment 60 days after the invoice date, but your suppliers specify net-30, then you may have to dip into working capital to cover the time lag.
2. Get Accurate Invoice Data
When you issue an invoice with the incorrect details, either it will not get processed or your customer will push it into a corner to deal with it at a later date. The result? Delayed payment. A simple fix is to request the correct invoice information (person, department, PO number) before you start a contract, and to hold staff accountable for checking the accuracy of that information at regular intervals.
3. Create a Payment Reminder Process
There should be a robust internal process for resolving overdue invoices involving automated payment reminders and follow-up calls to address any potential issues with a past-due invoice. The process typically culminates with legal proceedings if payment is not received by a specified date. For ongoing customers, consider discontinuing work until you receive payment (and communicate this strategy across the organization). It’s always a hassle for your customer to find a new vendor, so discontinuing work is a potent threat.
4. Offer Early Payment Incentives
Providing small discounts for early payments to your customers can be an excellent way to make sure you get paid on time. For example, you could offer a 2 percent discount if the buyer pays in 20 days instead of 30. If you are unsure about the right incentive strategy for your manufacturing business, speak to an accountant about your cash flow.
5. Automate Your Accounts Payable
One solution for radically speeding up your accounts receivable is to allow your customers to simply “click and pay.” Most accounting software systems allow you to generate and send invoices digitally; the customer then pays electronically via PayPal or clicks through to a secure portal where they can review, download and pay invoices online via credit card or bank transfer.
6. Consider Recurring Billing
Recurring billing software allows you to charge your customers’ bank accounts or credit cards automatically at pre-agreed intervals, completely removing the issue of forgotten payments. While not yet well established in the manufacturing industry, it is a promising future option for ensuring the cash arrives instantly and predictably, eliminating the amount of time you spend collecting your hard-earned money.
Summing It Up
Cash flow is the lifeblood of your business, and it is worth pursuing every avenue to ensure that you get paid promptly every time. Your manufacturing CPA can provide a deeper level of analysis to compare your results with those of your industry, lower your average day’s sales outstanding, and help you to implement strategies that boost your cash flow and protect you in the case of an unexpected loss.
Contact the professionals at Goldin Peiser & Peiser for further information or help on this topic.