Late Payments and Long Payment Terms: How to Manage the Risks and Improve Your Cash Flow

Staffing firms, especially those working primarily with large corporations or with a high concentration in one or two customers, can find themselves in a cash crisis when waiting out extended payment terms or late payments from customers. This can result in an inability to make payroll, provide benefits for employees and meet tax requirements. Time chasing payments is time taken away from recruiting new candidates and securing new placements.

How to prevent late payments

  1. Know your customers: Run credit checks on customers before offering credit terms and set the appropriate credit limits.
  2. Be straightforward about your payment terms: Make your payment terms clear and consistent from the start to customers. Include expectations about late payment charges to avoid disputes.
  3. Keep records: Maintain up-to-date documentation on business dealings to spot potential issues, and take the necessary steps to resolve them, promptly.
  4. Efficient invoicing: Send invoices soon after the job has been completed along with instructions on how to remit payment and adhere to a regular payment schedule. Ensure your invoices include the necessary details like your company name/logo, contact details, invoice number, invoice date, amount due, due date, description of goods/ services and billing address.

Don’t let late payments turn into bad debt

Effective accounts receivable management is vital to identifying signs of late payments before any problems arise. The key to successful resolution is to deal with late payments immediately and not let too much time pass after the due date. Have an informal conversation with the customer and get an agreement on when the payment will be made, then provide a documented follow-up to yield the best results. Be friendly but firm, if you are not persistent others will get paid before you.

Documentation is important in default situations. Emails and other types of reminders addressed to the debtor serve as proof that a business attempted to collect on the debt. Credit insurers or debt protection services will often require proof that reasonable steps to recover the debt have been taken before paying out any claims.

PREMIUM CONTENT: US Staffing Industry Pulse Report

How to give your customers the payment terms they ask without the impact on your cash flow

Growing a business requires investment or funds specifically allocated to fulfill new placements, while larger customers will require longer payment terms which can impact cash flow. A loan or a line of credit are frequently used sources of finance and tend to be competitively priced. However, these solutions also tend to be ‘one size fits all’ and usually don’t take into account individual business requirements. It is important to do your research and choose the financing that best suits your needs to help avoid a cash flow crunch despite obtaining funding.

Factoring and asset-based lending are financing options that will grow in line with your business. These solutions are more obtainable by smaller businesses that don’t qualify for bank loans, are required to provide numerous guarantees, or that still have a funding gap that won’t sustain the business needs. Factoring services advance money based on a company’s invoices and funds are usually made available 24 hours after the invoice is submitted. Debt protection (against your customer’s inability to pay an invoice) is often available upon request. In addition, factoring is often paired with back-office support services such as timesheet and payroll management, tax accounting, workplace insurance, employee benefits, onboarding and e-verification.

Choosing the right type of financing plays a major role in the success of a business and shouldn’t be a rushed decision. Identifying and articulating your unique business financing requirements goes a long way in making the right choice. Prepare a detailed monthly financial plan and identify possible cash needs in the near future when assessing the amount of financing your business requires. Take into account any seasonal requirements and one-off cash needs in your request for financing. You always have the option to request an increase of your facility limit. However, lenders are more open to negotiating a higher limit up front when they are trying to win your business.

Daniel Rodrigue

Daniel Rodrigue
Daniel Rodrigue is the Bibby Financial Services National Head of Sales; He develops and implements solutions to improve efficiency and profitability.

Daniel Rodrigue

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