Effective Strategies to Deal with Late Payments on Overdue Invoices
For any business to maintain its peak performance, the cash flow must be at an optimum level at all times. After all, there are all kinds of recurring expenses including office space rent, utility bills, inventory financing, and payments to vendors and staff. So, if there is a cash crunch, even if for a brief period, it can bring the entire organisation to a standstill.
Now, although you can predict financial problems and revenue growth on the basis of sales and metrics like lead conversion rate, ROI, etc., the payments on overdue invoices can’t often be foreseen. So, what can you do when more and more clients start to develop a habit of late payments?
The following are some of the most effective ways you can deal with late payments:
Imposing a Penalty:
One of the simplest ways to deal with late payments is to penalise a customer for their undesired behaviour. It’s how organisations deal with most issues anyway and it’s completely fair. When a client is aware of a penalty’s involvement, they will make sure that when the time comes to clear the invoices, then yours have the highest priority.
Of course, levying a fee for late payments may not work in all situations. For instance, some clients deliberately delay payments when they aren’t happy with the services provided to them although they may not necessarily voice their dissatisfaction. In a situation like this, imposing a fine for a late payment can easily make matters worse and escalate the problem. So, you must apply this strategy with discretion.
The concept of advance payments isn’t really new, but it works and is used by numerous organisations even today. In this, you can seek an advance payment which could be either a full amount or a partial amount when processing an order of a new client. However, you may also want to give some leeway to your old and trusted clients who have a record of timely payments.
Invoice discounting is a tried-and-tested solution that can easily put all your woes of overdue invoices to an end. In this, you can simply submit your invoice to a financing firm and they can disburse a certain percentage of the invoice (usually around 85%) value. You can then repay the amount later which is when the financer releases the remaining amount minus a standard fee (around 3%). As far as working capital solutions go, this one is pretty fair and reliable. After all, for a small fee, you can forget about all your cash flow disruptions. Even if your clients are lazy and pile up unpaid invoices, you will have the funds flowing in.
KredX is a new-age invoice discounting platform where you can sell your invoices at competitive rates to meet your working capital requirements. Our platform is backed by a strong network of investors that allows us to process invoice sales within 24-72 hours. All you have to do is register your business on the platform, and you can start selling your invoices to enjoy uninterrupted access to working capital.
A large number of B2B companies need prompt invoice clearances to stay cash-flow positive. However, it’s not always possible to establish an arrangement like this, which is where solutions like advance payments and invoice discounting can help. It’s also strongly recommended to use a dedicated invoice management software for greater control.