Small business owners often lament clients who don’t pay invoices on time – and their business can suffer as a result. This does not have to be a recurring frustration for you every month, though. How can you improve your cash flow, reduce outstanding invoices, and keep your best clients coming back?

First, let’s define the term cash flow, which refers to having the cash you need to run your business. It is not, however, the same as your business’s profit. Improving cash flow requires a little effort on your part but only takes two steps: increase your receipts and decrease your expenses. Though not always that simple in practice, you can take some specific actions to get on the right path.

Common Mistakes

Some common mistakes business owners make which negatively affect their cash flow include these:

  1. Not asking customers to pay and not taking deposits up front.
  2. Not enforcing your late payment or credit policies.
  3. Focusing on profit and not cash flow.
  4. Not heeding early warning signs such as continued late payments or customer not returning calls.
  5. Operating on a gut feeling instead of analyzing numbers.

When a client doesn’t pay, the business essentially extends them a line of credit. Depending on your business, this could impact your ability to serve other clients, while you wait on late payments.

What To Do?

Applying the following strategies consistently will bring accounts up-to-date as well as establish a policy for ensuring on-time payments in the future.

  1. Ask. Don’t hesitate to check in and see why their payment is late. Use different methods – phone, email, statement, letter – to determine the best way to reach them, then follow up until it’s resolved.
  2. Block off time on your calendar to review the status of your invoices and review all your outstanding invoices every week. Be specific: use the same day and time every week, and do it consistently until it’s a habit for you.
  3. Print your invoices on colored paper so they stand out visually among the sea of mail and papers your clients get.
  4. Begin with a courteous, open-ended question to get information: “Last month’s invoice seems to have been overlooked. Would you please check on the payment status and let me know of any problems?”
  5. Outline steps to take for late payments: late fees/finance charges, demand letter from an attorney, small claims court, collections agencies – and then use them!

Good communication forms a solid foundation for an ongoing, positive relationship with your customers. Clearly outlining payment expectations will reduce nonpayment issues as well as your stress from waiting on customers to pay. Finally, following through on your policies will weed out those who cost you more money through nonpayment, freeing you up to concentrate on your business and your ideal clients.