Without money coming into the company, there is a good chance a small business will end up struggling. Instead of ignoring this vital aspect, owners and entrepreneurs should find ways to ensure that all clients make their payments on time, and that cash is always flowing.
Clients and customers who are late with their payments or are challenging in other monetary aspects are problems for any business, no matter the size. Working with people like this can cripple a financial plan, and it will be much harder to predict the future fiscal health of the company without knowing when that next check is coming in. So, it is up to the small business owner to be on the lookout for solutions to this specific problem, and create a structure that can withstand these types of issues.
Encourage a positive resolution
Problem clients don't just appear, they are often created over an extended period of time. This means that the situation that caused them to miss payments or otherwise be unruly was established early on in the relationship. With that in mind, a small business can prevent these headaches from appearing again in the future.
According to Inc. magazine, clients should have to sign contracts before work begins. This document can hammer out the details about the job, including deliverables and prices. Without a contract in place, legal action following a series of missed payments will be much more challenging, so it also provides some security for the company in case things ever do go bad. In addition, a small business should provide incentives for early payments, in order to avoid an unfortunate situation. For example, offer 5 percent off for cash or check the day the work is finished. Advertise these types of promotions early and often to make sure that every client understands what is available.
Above all else, a small business shouldn't work with clients who are chronic late payers, the news source noted. If the same company or person constantly misses deadlines, perhaps it is better to move on from the relationship. Or, if that isn't possible, sit down and talk about the issues and see if there is a resolution that makes both parties happy.
Always prepare for the worst
While bad clients are never wanted, they do happen. So, a small business should always be prepared for the worst case scenario, in order to make sure that any missed payments or other issues don't ruin a financial plan.
According to Mashable, the priority should be to get paid. However, late payments do occur, and it can be in the company's best interests to have funds set aside to cope with this specific problem. Even the best clients miss a deadline here or there. To avoid a negative financial situation, a small business must have several months of funds at the ready in case the cash flow dries up. This will help cover monthly bills and other expenses that can't wait, and it can also help avoid a tense conversation with a client who is typically good. As an added bonus, it can prevent employees from spending time chasing down money, so they can be more productive in other areas instead.
Overall, bad clients and late payments will happen. While there is no avoiding these situations, there are steps a small business can take to prevent them from happening frequently. In most cases, the client isn't a bad person or company, but the relationship itself has soured. Finding a way to fix that problem and encourage collaboration can be one of the best steps toward avoiding missed payments in the future.