Invoicing isn’t one of the most alluring parts of running a small business, but it’s likely the method that your business uses to get paid. If you notice your customers or clients are paying your invoices late or not at all, this can be extremely frustrating. Furthermore, if the situation persists, it could lead to your company shuttering for good.
“Small businesses typically run lean during their first few years of operation,” notes CPA firm Rivero, Gordimer & Company. “This means very tight margins, limited working capital, and very little financial wiggle room. As such, when clients pay invoices late, or not at all, the ripple effect can be devastating.”
Here are a few signs that you’re being too nice when it comes to unpaid invoices.
1. You Crash From Cash Crunch to Cash Crunch
Cash crunches—when your company’s expenses overwhelm your revenue—can be harmful to any small business. But consecutive cash crunches can be truly devastating, especially if your business is young.
While inaccurate financial planning can cause cash crunches, many businesses find themselves with a ledger showing they’re making enough money while their bank account is still empty. This frustrating reality could be a sign that your clients are refusing to pay invoices—or paying them too late.
Ideally, you should be able to incorporate invoice payment deadlines into your business planning. If you consistently find this is impossible, you likely need to be more vigilant in collecting.
2. You Feel Taken Advantage Of
While it isn’t a demonstrable data point, if you’re feeling like your clients are taking advantage of your generosity, you could be too forgiving with your expectations regarding when—or if—your invoices get paid.
You can still be friendly in business but firm in your expectation to get paid—after all, you did the work or provided the goods. Be clear in setting the terms for how you expect to get paid, and don’t be shy with following up.
3. Your Inventory Is Running Low
If your business is based around retail and you find yourself not purchasing inventory due to not having enough cash on hand, the issue could be caused by your invoices being paid late. You might also be freezing hiring and risking being late with payroll if your cash is low—and all 3 situations can be ruinous for a business.
If you can’t buy more inventory because you’re waiting on invoices to be paid, you’re losing sales.
4. You’re Cutting Into Your Own Paycheck
For many small business owners, the first paycheck they skimp on when customer payments are late is their own. This isn’t a sustainable situation and should serve as a strong impetus to get serious about collecting the money you’re owed. You deserve to get paid in full for the services you deliver or the goods you provide—and there’s nothing bad about pursuing your money through timely invoicing and follow-ups.