Late-paying clients can be the bane of any small business. Staying strictly on top of your accounts receivable is essential to protecting your working capital and keeping your daily operations running smoothly.

Running a small business can be difficult during the best of times, but when you start dealing with chronic late payers, maintaining stability can feel almost impossible. That is why it is hard to overstate the importance of keeping a strict eye on your accounts receivable.

Late payments cost small and mid-sized businesses an estimated $3 trillion every year, with roughly one in ten invoices not being paid on time. That is an enormous figure, and the unpleasant reality is that some otherwise healthy companies will be forced to close their doors simply because they ran out of liquid cash waiting for checks to clear.

Approximately one in five business failures are directly attributed to customers paying late. Unfortunately, the time delay between delivering a service and getting paid is an inherent risk for B2B operations. To survive, you must proactively factor this delay into your accounting workflows.

Invoice Tracking & Aging Reports

When business starts picking up and signed contracts come rolling in, it can be all too tempting to look at them as money in the bank. That is where disaster lies. Treating unpaid invoices as liquid cash leads to complacency and premature investments in expansion. If you are not careful, you could find yourself running into a severe cash flow crisis when payroll is due but your clients’ invoices are still sitting at net-60.

The answer is to plan meticulously—and this starts with getting a firm grip on the numbers. You need a comprehensive view of how much you are spending, what has actually cleared the bank, and what accounts are overdue. Generating weekly Accounts Receivable (AR) Aging reports helps you identify which clients need immediate follow-up to kickstart your income stream.

Financial Forecasting

The next step is ensuring you have a clear view of what the future holds. This requires concise financial forecasts. You must map out all fixed and variable liabilities, such as rent, utilities, taxes, and your payroll processing requirements. This way, you will never be surprised by a large outgoing transfer.

By linking these upcoming liabilities to your projected (and historically delayed) income, you get fair warning of potential shortfalls. This allows you to take appropriate measures ahead of time—whether that means drawing from a business line of credit to bridge the gap, tightening your own expenditure, or halting services for clients who are severely behind on payments.

Accounts Receivable Management

Executing this level of tracking takes a significant amount of work and accounting expertise. Many entrepreneurs feel uncomfortable chasing down payments or cannot justify the expense of hiring a full-time, in-house AR clerk.

Partnering with an outsourced bookkeeping team represents an affordable, highly efficient solution. It gives you access to virtual experts ready to plug directly into your invoicing software. Regular, accurate financial reporting cuts out the guesswork, allowing you to manage your income effectively and protect your operations from the turbulence of late payers. To see how affordable this back-office support can be, explore our flat-rate monthly pricing packages.

Related Reading

• Small Business Accounting: Better Late Than Never