The customer payment cycle is essential to the way in which businesses offering services earn their money. Most businesses offering services – especially on a large scale – bill customers after they have completed their work. A construction company, for instance, will not expect customers to pay the entirety of their fee before a project is completed. This can create a rather unfortunate gap between injections of cash into a company. Business leaders need to work out ways to mitigate the gaps in payment and the possible lack of ultimate payment caused by the billing cycle. Here are a few ways businesses can keep the cash flowing.
Utilize Credit Checks
Companies can use credit checks in order to better understand the financial behavior of potential clients. A credit check conducted by a company – or, more likely, a third-party checker – can determine whether a customer has been able to pay back debts and settle bills. This is an extremely useful thing for a service-offering company to know. If a company cannot know how trustworthy a customer is, they could provide their services without ever seeing a penny. This is one of the great anxieties inherent in the customer payment cycle. Really knowing your customer’s level of responsibility can ease some of this anxiety.
Take A Down Payment
The charging of a down payment or deposit can make it easier to worth through the customer payment cycle. Although deposit money cannot be reinvested into a business under usual circumstances, it can be used if a customer fails to live up to their end of a bargain. Most companies offering large-scale services tend to take some form of down payment in order to secure their finances in the event of a nonpayment. Some companies reassure customers of their deposit’s safety by paying it into a third party deposit protection scheme until payment has been made or forfeited by the customer.
In many cases, the length of time between the signing of an invoice and the payment of a fee can be so long as to negatively impact a business’ cash flow. Luckily, invoice financing brokers like Fundinvoice.co.uk fill this financial gap by brokering funds based on the value of the invoices owed to a company. Although brokers take many factors into account, the most important factor is the amount of money a company can guarantee it will eventually receive from customers paying outstanding invoices. Invoice factoring has become increasingly popular with businesses that require a constant stream of income regardless of the customer payment cycle.
Encourage Direct Debit Or Standing Order
Ultimately, the customer payment cycle is an essential part of all service-based businesses. It may be worth encouraging customers to bypass the invoice system and to pay using direct debit or standing order instead. These payment types work to automatically transfer regular payments to a business and are especially useful for customers and businesses that regularly interact so payments aren’t forgotten or missed.