Getting paid on time is critical when you are the owner of a business. But often times, you have to send a second invoice or call a client before receiving payment. It's important for business owner to monitor their incoming revenues. The shorter the revenue cycle, the more profitable the business will be. The challenge for business owners is communicating expectations of payment to clients. Consider the following tips to help shorten your revenue cycle.

1. Practice just-in-time inventory. Companies often spend money when it is not necessary. Don't buy inventory until you are just about to get the product out the door. Needs and desires for particular goods are constantly changing. You may sell a large quantity of something one month and a small quantity of it the next month. By waiting to purchase inventory on an as-needed basis, your money will be well spent and in the bank for a longer period of time.

2. Bill on time. The best method of payment is in advance, but it is not always practical. If a client can't pay the full amount in advance, ask them to pay a portion of the full amount. If you don't receive any money in advance, then send the client an invoice within a week of service being provided or products being shipped. Don't wait until the end of the month. When clients receive invoices right away, they may sense that it is a priority for you to get paid. Motivate your clients to pay promptly. Offer them a one-to-three percent discount on fees if they pay within 10 days of receiving the invoice.

3. Double-check for accuracy. Before sending invoices to clients, carefully double-check them to make sure the information is correct. It not only looks unprofessional to have mistakes on invoices, it may cause your customer to delay payment. Errors and mistakes are bound to happen, but it's your job as a professional to find them before the client does.

4. Follow-up on payment. If you haven't received payment within 30 days of sending an invoice, you may want to call your client or send an email inquiring about the status of payment. There are several reasons why a payment may be late. Perhaps they never received the invoice, or it got misplaced. It may have been lost in the mail or the check is in the mail. Whatever the reason may be, following up on payment can help you get a better handle on your receivables.

5. Special situations. When dealing with new customers or very large orders, you may want to call your clients within a week of the invoice's due date to verify that the invoice is scheduled for payment. If you feel odd about calling a client to ask about the status of money, ask them a few other questions. You may ask them if their order was completely successful or if their merchandise arrived in good condition. Inquire whether they were satisfied with your service. When done properly, these follow-up calls may be viewed as good customer service.

It's important to keep your revenue cycle flowing in the right direction, but it's just as important to keep your customers happy. By following good collection practices, you may see an improvement in your bank account and your clientele.

Lenny Gordon is a Stonefield Josephson Principal and business consultant. For more information on how to shorten your revenue cycle, contact Lenny Gordon at Stonefield Josephson at 310-432-7423 or lgordon@sjaccounting.com.

 
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