Top 5 Tips to Protect Yourself from Slow Paying Customers Affecting Cash Flow
What happens when one of your favorite customers stop paying their outstanding invoices on time? I may not be a good idea to take drastic action and potentially damage the relationship. However, you don’t want to jeopardize your company’s cash flow and negatively impact your bottom line. Here are five tips on how to protect your company from cash-strapped customers, and avoid letting their lack of cash flow affect your bottom line.
1. Look for signs of trouble. Here are some examples:
- Payments consistently not coming in regularly and on time
- Payments made from a personal account or credit card.
- The client keeps asking for more and more extensions?
- A new client approaches you because they were “fired” by your competitor.
These are all warning signs that your customer may be having some major cash flow issues.
2. Understand Bankruptcy Laws in your State.
If your customer goes into bankruptcy, it’s important to understand your rights and chances of receiving back payments as a creditor. Unfortunately, any payments you received with 90 days of their filing for bankruptcy may be recalled. If you did business with your client within 20 days of filing, you may have better chances of getting paid. Know how a customer’s bankruptcy filing can affect your cash flow. Understand how collection actions may affect or hinder your case for receiving payments. It may be wise to contact an attorney if the customer is a significant part of your overall income.
3. Don’t accept new business from a client that is having financial problems.
It’s a tough choice to make, but refusing future business from a client that has stopped paying on time can be the wisest business decision. Before you take this more drastic step, do your due diligence and see if there are expected upturns in your client’s industry or, if feasible, have an honest conversation and see if there are indications of improvement and cash flow growth for their company in the near future.
4. Look for alternative ways to obtain money on your receivables.
Invoice Factoring can put money in your hands and improve your cash flow. An invoice factoring company, such as American Receivable, will purchase your unpaid invoices and give you a percentage of the value. When American Receivable collects payment on the invoice from your client, you receive the remaining amount due on the invoice, less the agreed upon fees.
To learn more about Invoice Factoring, visit American Receivable’s website.
5. Look for alternative ways to get paid by the customer.
- Require a deposit or prepayment for any future business. This will give your company cash flow up front, and protect you—at least partially—from any possible future non-payment. You can adjust the percentage of the down payment based on the perceived risk.
- Require payments at benchmark points during the contracted work. This will hedge against the need for a single, large invoice at the completion of the job. Partial payments can be set up monthly, or you can help your cash flow by arranging for payments at key points in the job cycle.
- Change the invoice terms and set up a financing plan. Instead of Net 15 or 30, can you set up a payment plan that allows the company to pay over a longer period of time with added interest payments?
- Exchange services for services. Does your customer have a business for which you can utilize their services in exchange for yours? If they do not have the cash flow to pay their invoice, you can set up a barter transaction.
- Similar to barter, you can negotiate the transfer of assets instead of cash payment on an invoice.
- Discuss their cash flow. Is it a seasonal business and their cash flow will improve in the coming months? Is your cash strapped customer coming into a large payment soon, or will one of their debts be paid off in the near future? In other words, will their business and cash flow improve soon enough that they can pay their outstanding balance to you in a reasonable time frame?
- As a last resort, you can look at collections options or talk to an attorney.
- As a business owner, protecting yourself from non-paying, cash-strapped customers can be difficult. Understand the challenges of running a business, and understand the cash flow problems that can occur. It’s important to look for the red flags of failing business, and find solutions to alleviate the effects they have on your business.
The Solution in Invoice Factoring
Find out how American Receivable can offset issues from cash flow problems caused by non-paying customers. American Receivable is the industry leader in invoice factoring, helping your company obtain the financial resources they need to grow, increase inventory, make payroll on time and effectively compete in the marketplace.Call for a FREE Quote Today: 1-800-297-6652 or complete an application for factoring online.