Tips for preventing late payments
Your customers are a top priority for your small business, but there are good reasons to keep your creditors and vendors happy too. Keep them on your good side while also maintaining good credit by paying your bills on time, including supplier invoices, loan or credit card payments, payroll taxes, and other accounts payable.
Avoid unintentional late payments
Banks and accounting software today offer several tools to help businesses make on-time payments. One of the best options is to start by setting up online banking so you can use electronic bill pay and/or ACH debit transactions. As soon as you know the amount you owe, set up payment for a specified future date and your bank takes care of the rest. You can even set up automatic recurring payments when you know that you’ll owe the same amount each month or quarter.
Mobile technologies also provide great ways to keep track of upcoming bills. Set up real-time email text or alerts telling you when bills are due.
Ensure on-time payments through positive cash flow
If cash flow is tight and you are worried about having enough funds to pay vendors or buy office supplies, use online banking to set up alerts that will email or text you when balances drop below a certain amount.
Cash flow issues most often arise when your customers don’t make timely invoice payments. If they don’t pay you, you can’t pay your vendors, and you have a cash flow gap. Offer incentives so that customers will pay on time or even early, such as a small discount for on-time or early payment. Also, take the time to negotiate mutually beneficial terms before you make a sale so the vendor and customer know what to expect.
If you accept customer payments at the point of sale (POS), get that money deposited into your business bank account faster by using portable scanners for checks or by accepting credit cards as a form of payment. If you get checks in the mail at different times throughout the month, get those in the bank faster too by looking into your bank’s remote deposit technology. This will minimize your trips to the bank and make more cash available for on-time payments to vendors and suppliers.
Protect cash reserves and manage expenses
A business line of credit or credit card can help you manage business purchases and cash flow. When expenses get charged to a card, it is easier to track them and anticipate the amount you’ll need to set aside for upcoming payments. And, if necessary, you can leverage credit card financing to spread out payments, leaving your cash reserves for purchases and expenses that cannot be financed.
Protect your credit and relationships
Do whatever you can to pay creditors and vendors on time. You will protect your company’s credit, and possibly even your personal creditworthiness. Plus, vendors who trust you and like doing business with your company are more likely to offer you discounts and special offers. If and when your company hits a rough patch when cash flow is tight, maintain honest and open lines of communication no matter what your situation. Credibility and good credit go hand in hand.
Kelly Burkart is a freelance writer from Minneapolis, Minn. While she has spent most of her time writing about financial services the past 15 years, she has also explored and written about everything from cardiovascular health to travel, higher education and sustainable energy practices.