One of the biggest challenges I used to face in my business was payment delays.
As a freelancer, sometimes it took days for clients to send payment — or weeks. There were even times that I ended up chasing payments months later. Chasing these payments and dealing with the delays often impacted my cash flow.
Freelancers and online business owners aren’t the only entrepreneurs who find themselves faced with payment delays and problems with working capital.
According to a survey from Dun & Bradstreet and Pepperdine Graziadio School of Business and Management, 66% of small and medium businesses are dealing with working capital issues. One of the issues impacting business cash flow for many small and medium businesses is payment delays.
Payment Delays Rise
According to the survey, more than one-fifth of the businesses surveyed say that their accounts receivables payments have slowed in the last three months. Basically, the people that owe them money are paying slower.
When you see this happen, it’s clear why there are working capital woes starting to impact businesses. The survey found that more small businesses are impacted by payment delays than medium businesses.
On top of that, businesses owned by women and minorities experience greater impacts from slower accounts receivables payments. With delays, many businesses have sought financing to help them smooth cash flow. Financing can help you get the working capital you need to move to the next level — or even maintain the current level.
With this rise in payment delays, it could impact businesses down the road. It could even affect the economy. After all, our small and medium businesses drive our local economies and the wider economy. With payment problems and difficulties with working capital, it can be difficult to stay afloat. Managing payments can be frustrating without the right tools.
In your own business, cash flow matters. Your working capital allows you to pay employees, keep the lights on, and order inventory. When your accounts receivables are slow, it’s harder to meet payment deadlines and pay your own bills.
Ways to Smooth Cash Flow
The survey points out that working capital challenges lead to companies seeking financing. You can use financing to smooth your cash flow as you move forward. Some of the ways you can smooth your cash flow with financing include:
- Start a business savings account: Having a bit of money in reserve can be a big deal down the road. If you have a good month, consider banking the extra. When things go well, save extra and put it toward the future. That way you have a little bit to rely on if you experience payment delays later.
- Apply for grants: While these are hard to get, it is possible. Look for small business grants from your city, state, and at the federal level. It doesn’t hurt to apply for a grant, and you might actually get money to help you build your business further.
- Use a business credit card: First of all, if you have a business credit card, you can use that to smooth some of your cash flow. Start by using the card to buy inventory, equipment, and pay bills. That frees up your other money to pay employees and handle other costs.
- Open a line of credit: This is a strategy I use to smooth my own cash flow. I have a line of credit that I can draw on. It’s connected to the checking account, so if I experience a delayed payment, and a bill needs to be paid, the money is automatically transferred. When the payment arrives, I can pay off the line of credit — usually before interest is charged.
There are other types of business financing that can be used to help solve working capital problems. Small business loans and invoice factoring are ways to bridge some of the gaps. You can also use business crowdfunding and P2P loans to get some of the money you need.
However, the interest takes its toll. It can be difficult to make sure that everything happens when you need it to, and you do a pay a price. With invoice factoring, you don’t get the entire amount you owe. Plus, some fast loans come with expensive interest.
When you need to smooth cash flow, though, there’s not a lot else you can do. You just have to get the money where you can, and hope that you receive your payments at some point.
How to Speed Up Payments
If you see payment delays, there are some things you can do to make a difference. Sometimes, getting paid faster is about how you manage your invoices.
Make sure that you are following invoicing best practices.
Are the terms of payment listed clearly? You want to make sure you have a clear due date. Realize that the sooner the due date, the faster you are likely to be paid. If possible, try to have your invoice due within 15 to 30 days. If your accounts receivables are on a slow track of 60 to 90 days, that can really cause a pinch in your efforts to keep the working capital going.
Next, implement a late payment fee. This can be a flat fee, or it can be a percentage. Either way, the reality is that when someone pays you late, you are essentially giving them a loan. People pay interest on loans. If you are loaning people money, they should be paying you interest. You might see your payments accelerate once you start adding a late payment fee.
Finally, automate as much as you can. Sometimes payment delays come because you haven’t sent out the invoices. Remembering to send them out can be difficult. As a business owner, you have a lot on your plate.
If possible, use recurring invoices. Even if you can’t just automate, it’s possible to create templates. Make a reminder so that you sit down and invoice at the same time each week or month. Use a program that automatically follows up after a set amount of days. Even if you have to manually send out invoices, you shouldn’t have to send out reminders. A good invoicing program can be very valuable.
As you implement some of these practices, you might be surprised to see your payment delays fall. Your cash flow will improve, and there will be less of a need for outside financing for your business.
Keep Building Your Business
Even as you work out how to get rid of payment delays, it’s important to keep investing in your business. Slowing accounts receivables don’t matter as much if you have more income.
The more you focus on your business, the better off you’ll be. When you have resources, put them back into building your business. Boost your income, and things become more manageable.
This can take time, though, so it’s important to have a plan. Implement ways to smooth cash flow and speed up payments. Then, as you wait for those items to be effective, take the time to build your business further.
It can be hard to stay focused on your business when you’re struggling with working capital and can’t pay the bills easily. But that doesn’t mean it’s impossible. Do what you can to control the situation and keep pressing forward. Eventually, you’ll succeed and your business — your life — will benefit.