Keep the money flowing

Part 1: The Importance of Collecting & Invoicing for Small Businesses

Strategies to Maintain Healthy Cash Flow 

For small businesses, maintaining steady cash flow is the lifeblood of operations. Without it, meeting payroll, paying bills, investing in growth, and managing day-to-day expenses can quickly become a challenge. One of the most critical components of keeping cash flowing is ensuring that invoices are sent out promptly and collections are managed efficiently.  

Before the Sale: Setting the Stage for a Smooth Process 

Efficient invoicing and collections begin well before the sale even happens. Proper preparation can save small businesses countless hours and headaches.

Here are steps to take before heading into any transaction: 

• Establish Clear Terms: Clearly define payment terms and policies upfront. Whether you require payment within 30 days or offer discounts for early payments, make sure these terms are communicated in contracts, invoices, and other agreements. 

• Vet Your Customers: Conduct due diligence on potential clients before entering into a business relationship. Credit checks, references, or even simple conversations can help you gauge a client’s reliability in making timely payments. 

• Use Written Agreements: Create detailed contracts that outline all expectations, including payment timelines, late fees, and delivery schedules. At a minimum, send a confirmation through email of the details of the transaction. This provides a legal framework should disputes arise down the road.  

• Set Up Payment Options: Make it easy for customers to pay by offering multiple payment methods such as credit cards, ACH transfers, or online payment platforms. Convenience often leads to faster payments. 

By laying the groundwork before the sale, small businesses can avoid many of the pitfalls that lead to delayed payments and strained cash flow. 

The Importance of Good Processes to Share Information in Invoicing 

Even for very small businesses, establishing robust processes for sharing information related to invoicing is vital. Clear communication and streamlined practices ensure that invoicing tasks are handled efficiently and effectively, even with limited staff. 

Good processes guarantee that everyone involved in invoicing has access to the necessary information, such as payment terms, client details, and invoice statuses. This transparency reduces the likelihood of errors, such as missing payment deadlines or submitting incomplete invoices, which could lead to delays and strained client relationships. 

Moreover, well-organized invoicing systems simplify accountability. When information is documented and shared systematically, it becomes easier to track outstanding invoices, monitor payment progress, and identify any issues that need resolution. For instance, tagging invoices with submission dates or assigning follow-up responsibilities can help small businesses maintain a steady cash flow without unnecessary confusion. 

Even simple tools like invoicing software, shared financial trackers, or cloud-based storage can significantly enhance efficiency. These processes not only improve current operations but also provide a scalable framework for future growth. Investing in good invoicing processes is not just about maintaining order; it reflects a commitment to professionalism and reliability, which strengthens client trust and ensures financial stability. 

Delegating Invoicing Tasks: Sharing the Responsibility 

Invoicing is often a task handled by the business owner, especially in the early stages of a small business. However, as the business grows, this responsibility can and should be delegated to ensure efficiency and scalability. Here’s how to make the transition: 

• Hire or Assign Staff: Consider hiring a dedicated bookkeeper or accountant who specializes in managing invoicing and collections. For smaller businesses, this task can also be assigned to a trusted team member. 

• Utilize Automation Tools: Invest in invoicing software like QuickBooks, FreshBooks, or Xero to streamline the process. These tools make it easy to set up recurring invoices, send reminders, and track payments. 

• Train Your Team: Provide adequate training to anyone handling invoicing. Ensure they understand your business’s payment policies, systems, and customer communication practices. Also make sure you have a process for communicating information from the beginning of the sale until the invoice is paid. 

• Monitor Performance: Even after delegating, periodically review the invoicing and collections process to ensure it remains effective. Owners should stay informed without micromanaging. Owners can also set up a review before invoices go out, but it is important that the owner makes this a regular priority. Often, this task gets pushed aside and interferes with cash flow. 

Delegating invoicing tasks not only frees up the owner’s time but also ensures that payments are managed systematically, leaving fewer chances for oversights or delays. 

Improving Collections: Strategies to Keep Cash Flow Moving 

Even with the best invoicing practices, collections can sometimes lag. Implementing smart strategies to improve collections can make a world of difference. Here are some actionable ideas: 

• Automate Follow-Ups: Use software to automatically send reminders to clients as due dates approach or pass. Polite yet firm reminders can prompt timely action. 

• Follow up by phone or email to the receiver of the invoice (or their accounting department) close to the due date to ensure they received the original invoice. Often, it got lost or never made it to them. 

• Reassign the Task: If collections are proving challenging, consider assigning the task to someone with strong communication skills. Having someone else handle initial collections, with the owner or sales lead as backup, is often helpful. The owner or sales lead can then step in if the issue continues. This can preserve the client relationship while aiding in collections. 

• Add (and collect) Late Fees: Introduce late payment fees to incentivize timely payments. Ensure these fees are clearly communicated in your terms of service. For clients who continually pay late and don’t pay these late fees, consider increasing their pricing on future invoices. 

• Offer Discounts for Early Payments: Reward clients who pay ahead of schedule with small discounts. This encourages prompt payment and builds goodwill. This can also save you interest on lines of credit or loans. 

• Expand Payment Channels: Make use of payment platforms that allow for instant transactions. The easier it is for customers to pay, the quicker you’ll receive funds. 

• Maintain Open Communication: Stay in touch with clients and address any issues or concerns that might delay payment. Effective communication can prevent disputes and encourage collaboration. 

Dealing with Large Organizations 

When working with large organizations that have complex accounts payable systems, collections can become more time-consuming. Here are some tips to navigate these challenges: 

• Understand Their Process: Take the time to learn how the organization’s accounts payable system operates. Familiarize yourself with their invoicing requirements, payment cycles, and approval hierarchies. This can prevent delays caused by submitting incomplete or non-compliant invoices. 

• Build a Relationship: Establish a good rapport with key contacts in the accounts payable department. A direct point of contact can help you resolve issues faster and ensure your invoices don’t get lost in the shuffle. 

• Submit Detailed Invoices: Ensure that all invoices are accurate, detailed, and include all the necessary information, such as PO numbers, client names, and descriptions of services or products provided. This reduces the chances of rejection or delays in processing. 

• Follow Up Regularly: Large organizations often have longer payment cycles. Keep track of due dates and follow up as needed to ensure your invoice is progressing through their system. 

• Be Patient but Persistent: While patience is essential when dealing with larger organizations, persistence ensures your payment doesn’t fall through the cracks. Maintain a consistent but professional approach in your follow-ups. 

By implementing these strategies, small businesses can manage collections from large organizations more efficiently, minimizing disruptions to their cash flow. 

Conclusion 

Invoicing and collections are critical components of small business operations.

Getting it right requires preparation, delegation, and continuous improvement. By establishing clear terms before the sale, assigning invoicing tasks to capable hands, and employing smart strategies to streamline collections, businesses can ensure that their cash flow remains healthy and consistent. A proactive approach not only prevents financial hiccups but also builds stronger relationships with customers who value transparent and organized practices. 

Small businesses thrive when their financial systems are robust, timely, and effective. Investing time and effort in refining invoicing and collections processes is an investment in the future stability and growth of the business itself. 

Looking for help refining your invoicing and collections processes? Let’s talk!