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Today, let’s tackle a topic that’s as crucial as it is nerve-wracking: unpaid invoices. Specifically, how to manage those stubborn invoices that refuse to be paid and how to juggle your cash flow when you’re caught in a tight spot.
First off, a little disclaimer: while I’m here to share what’s worked for me, this isn’t financial advice. For personalised advice, always consult with a professional accountant or financial advisor. My experience is simply that—experience, not a one-size-fits-all solution.
The Invoice Perfect Storm
Let me set the scene with a recent example: we had nearly $250,000 worth of invoices due over a span of ten days, and none were paid. For a business our size, that’s a stressful situation. So, let’s dive into the strategies I use to handle such scenarios effectively.
1. Crafting a Winning Invoicing Strategy
An effective invoicing strategy is critical to minimizing payment issues. Here’s how to refine yours:
- Track Your Invoices: Where do you monitor your invoices—ATS, accounting software, spreadsheet, or calendar? It’s essential to have a consistent system and stick to it. You need to be intimately familiar with this system as it’s your financial lifeline.
- Designate Responsibility: Who manages your invoicing? It should be one person to ensure consistency and accountability. Avoid having multiple people involved, which can lead to confusion and errors.
- Send Invoices Timely: When do you send your invoices? Many recruitment agencies bill on the candidate’s start date. To stay ahead, consider sending invoices a few days before the due date. Follow up with reminders—five days before, one day before, and on the due date. Even if clients find it a bit much, it’s crucial to keep your invoice top of mind.
- Include Discounts: If you’ve offered discounts, make sure they’re clearly noted on the invoice. This avoids awkward negotiations later and ensures clients recognize the value you’ve provided.
- Offer Payment Options: Consider using a payment service like Select Pay, which allows clients to pay in installments. This flexibility can help clients manage their cash flow and reduce the risk of late payments.
2. Handling Overdue Invoices
When invoices go overdue, it’s crucial to have a follow-up protocol:
- Initial Reminder: Send a friendly reminder the day after the due date. An automated email works well, or a personal call for high-priority clients.
- Second Reminder: If payment hasn’t been made, send another friendly reminder three days later. This should be polite but firm.
- Third Reminder: At five to seven days overdue, escalate the urgency. A call might be necessary at this point to discuss payment.
- Final Reminder: If payment is still not received after 10 to 12 days, send a stern email indicating the risk of interest charges or involvement of debt collectors. This step often prompts action from clients.
- Extreme Measures: If the client continues to ignore you, consider involving a collections agency or legal counsel. This is a last resort but sometimes necessary to secure payment.
3. Managing Cash Flow
When you’re dealing with multiple unpaid invoices, managing your cash flow is essential:
- Weekly Cash Flow Forecast: Maintain a three-month cash flow forecast to anticipate financial shortfalls. This allows you to prepare and react proactively.
- Generate More Revenue: When in a pinch, increasing cash flow is vital. Seek upfront payments or retainers to bridge gaps.
- Negotiate with Creditors: If you have significant quarterly expenses, such as tax obligations, negotiate with creditors for a payment plan.
- Use Credit Cards Wisely: For non-essential expenses, consider using credit cards. This can provide temporary relief and even offer rewards like frequent flyer points.
- Invoice Financing: Services that advance payments against invoices can help manage cash flow issues without taking on traditional debt.
Wrapping Up
Managing unpaid invoices and cash flow can be challenging, but with a solid strategy and proactive measures, you can navigate these hurdles effectively. Remember, it’s about balancing persistence with professionalism to ensure you get paid while maintaining good client relationships.
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Thanks for tuning in, and may all your deals be successful!
