Unpaid invoices are a big problem for every business, but they can hit small businesses with limited cash flow especially hard.
And with alarming statistics on the negative impact of COVID-19 on small businesses, getting paid on time is more important than ever.
To an individual customer, getting behind on a single invoice might not seem like a big deal. But when you have multiple customers behind on multiple invoices, things can quickly become untenable.
In many areas, it’s acceptable and even customary to charge interest on unpaid, delinquent invoices.
But small businesses often feel uncomfortable doing so: entirely understandable. The last thing they want to do is alienate their clients and customers who they rely on to do day-to-day business.
"For small business owners, relationships are everything."
In this post, we’ll look at arguments for and against charging interest on unpaid invoices. And we’ll explore some alternative approaches you can take to improve your Accounts Receivable performance and your cash flow.
If you want to improve your AR performance but don’t feel comfortable charging interest on late invoices, there are a couple viable alternatives available to you:
Clearly communicating that the interest will be charged is the secret! This is the only way to charge interest or late fees without souring your professional relationships.
"Offering a small discount or other reward for invoices paid early is also an excellent idea to incentivize your vendors, especially if you don’t feel entirely comfortable going through with interest charges."
There are no hard and fast rules when it comes to small businesses charging interest on invoices - every business owner knows their own market and customers best. Remember that there are other ways to improve your AR performance, and a mix of approaches will probably yield the best results.