Late payments are more than just inconvenient; they can harm a small business. In fact, mismanaged cash flow causes most business failures. Businesses require a consistent stream of income, and when customers are late on invoices, it can disrupt operations significantly.

You must pay your creditors and employees on time. If you fail to meet your obligations, you risk incurring costly late fees, compounding interest, labor lawsuits, and a tarnished reputation.

In the last few years, there has been a more than 30% increase in the number of businesses that have been unable to pay suppliers due to late payments by customers. To avoid becoming a statistic, those with delinquent accounts must understand the seriousness of the situation.

Use this guide to learn how to collect outstanding payments if you’re unsure how to ask customers to settle an invoice professionally. Learn how to manage your accounts receivable so you can better manage your cash flow and keep your business profitable.

Although it is obvious that businesses require funds to keep operations running, most businesses, particularly small and medium-sized enterprises, have thousands of dollars in unpaid invoices.

Too many business owners ignore past-due invoices for a variety of reasons. It’s possible that they’re too busy to keep track of their accounts receivable and have trouble keeping track of who owes whom. Perhaps they are afraid of confronting a long-standing customer for fear of losing them.

Whatever your situation is, it is critical that you do not let outstanding payments fall by the wayside.

Accounts receivable (AR) is the monetary value of credit sales that you do not receive in cash. In your cash flow statement, you must account for the value (CSF). A cash flow statement summarizes all cash and cash equivalents coming into and going out of the business. It’s also critical for understanding your company’s financial standing.

When AR falls, it indicates that more cash has entered the company from customers who have paid off their credit accounts. However, if AR increases from one accounting cycle to the next, the amount must be deducted from net sales because it represents revenue rather than cash.

Outstanding payments increase your AR balance and create cash flow issues. And these difficulties may extend beyond your bank account. The emotional impact of cash flow problems is highly consequential, according to the business owners.

Outstanding payments can cause stress and impair your ability to repay lenders, suppliers, rent, bills, and employees. And the money your customers owe you loses value over time. According to some statistics, an overdue invoice is only worth 60% of its original value after 60 days. After 90 days, the value may fall by as much as 20%.

Every day you don’t have a dollar in your pocket is a day you’re not using working capital to your advantage, which reduces operational efficiency.

Customers who do not pay on time can be inconvenient, but overdue invoices can have a significant impact on business operations. In order to maintain cash flow and improve their chances of success, businesses must collect outstanding payments on time.

When an invoice is past due, what should you do? Follow these primary steps to collect past-due payments so that your company can be paid sooner.

Everyone makes mistakes from time to time. Remember that your customers are people, too. They may have been careless or misplaced their bill. The first step in collecting an overdue payment is to send a friendly reminder.

Ideally, they would be notified of their impending due date. Whenever a customer fails to make payments, you must follow up with an email. Do not ever assume that your customer will pay you based on your previous communications. Each passing day represents more than just lost cash flow. It has also depreciated in value.

Your goal is to figure out what’s holding you up and how you can get paid. Maybe your customer forgot, maybe they hit a snag, maybe they’re swamped with administrative tasks. Once you’ve identified the issue, you and the customer can work out a payment plan that works for both of you.

If your customer is having difficulty, you may need to assess how likely they are to recover and how much money you can reasonably recoup. If at all possible, try to extend the repayment terms or change the payment policies. Plan ways to evolve your small business so that it can continue to operate.

You can find a repayment solution after determining the value of the overdue account and how much it is worth to your company. Installment plans are the best way to repay the entire amount owed over time. For example, if one of your clients owes $12,000, you could give them the option of making $1,000 payments over the course of 12 months, with or without interest.

If your business can’t handle the cash flow hit, you could offer the customer a payment plan. In this case, you could accept $5,000 as a part payment rather than the full $10,000. You’d take a hit, but this option could help you get as much of the outstanding balance as possible as soon as possible.

Sadly, some customers will not get around even when you’ve made every effort to accommodate them and understand their situation . As a last resort , consult a debt collection agency or attorney to assist you in recovering your outstanding payments. You can have your attorney draft a demand letter and mail it to your past-due customer.

The best strategy is always prevention. Instead of scrambling to manage cash flow because of late-paying customers, use these tips to reduce the risk of payment problems from the outset.

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SpurtCloud automates your entire receivables process with powerful features, giving you valuable time back to focus on expanding your business. Overdue balances are reduced by upto 40%, your administrative labor is reduced by 10 to 20 hours each week, and we get our customers paid faster. We want to alleviate the burden of accounts receivable management and increase your cash flow. Visit our website to discover more!