Customers ordering a shipment but failing to pay on time is a problem that plagues business owners all too frequently. Backlogs of invoices can make it difficult for you to work on the company and concentrate on expansion. Additionally, having too many receivables may make it more difficult for your company to pay its employees, daily operational costs, and even suppliers. This develops into a vicious cycle that may negatively affect business credit scores or indices and, in some situations, the personal credit of a business owner. Whether this occurs, you can be refused or forced to pay substantially higher costs as a result of your new dangerous credit status when you apply for financing, new partnerships, better creditor/vendor conditions, or leases.
Take the following actions to prevent past due debts from damaging your company's credit and budget.
Ensure that your contracts are transparent.
This involves specifying the terms and conditions that the client was presented with and accepted. Additionally, it should be clear what portion of the invoice they are committing to pay. This information should also be included in the contract if you give a discount for paying in advance or charge late fees.
Send thorough invoices and keep track of them.
Customers are accountable for paying their bills, and you are accountable for handling billing in a professional manner. Invoices must be itemized and include complete purchase details (s). Along with the good or service, an invoice should be delivered, and its receipt should be confirmed over the phone.
Before extending payment terms, be cautious.
Being picky about who buys your items may seem counterintuitive, but when a business offers payment terms, it is putting its trust in another business and needs to be certain that invoices will be paid. Before imposing term constraints, business owners can safeguard their assets by verifying their commercial credit scores. You will have a better knowledge of the people you are dealing with and their historical payment patterns if you review credit. You might decide that a potential customer poses too great a risk and ask them to pay upon receipt if their credit history reveals a habit of past-due or unpaid accounts.
Keep your business credit in good standing.
Even if your client has excellent credit and isn't currently in financial trouble, the net-30 or net-60 term they require could still be problematic for your cash flow. The creditworthiness of your customers is important, but your business credit should also be excellent. especially if you intend to use an overdraft account, line of credit, or invoice factoring to pay bills while you wait for receivables. You must be able to demonstrate good payment habits to be eligible for these popular forms of financing and to receive the lowest interest rates.
Apply for an overdraft account or credit line.
When money isn't flowing smoothly or customers aren't paying on time, your firm may benefit if you have a line of credit or an overdraft account with a big enough balance. If you have a line of credit accessible, you can use it to avoid having credit problems when money is tight. Keep in mind that you require great (or at least good) personal and corporate credit. Before approaching your company banker or a credit specialist for a line of credit, be sure to evaluate both your personal and business credit.
Pencorp LLC is ready to offer a free credit consultation and provide insight into your business credit reports.
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