Most business owners understand how long it takes for them to get paid. Consider the following timeline:
Invoicing - After a job has been completed an invoice is created. Invoices are usually generated, depending on the type of business, within 1-3 business days.
Delivery - Most small businesses send their invoices my mail. Depending on where the client resides, mail can be delivered immediately or within days. On average, mail is received within 3-5 business days.
Invoice Due – Generally, small businesses get paid within 30 days of invoicing. This is a common length of time businesses give consumers or business clients to pay their invoice.
Receive Payment – There are a few payment methods available – payments over the phone, online bill pay, or online website. Most businesses, however, choose to pay by check and sent by standard mail. Again, depending on where the client is located, it can take 3-5 business days to receive payment.
As you can see from this timeline, it can take a business about 34-38 days on average to receive payment on work that has been completed. These are average figures and for some businesses payments may come much sooner. But it is not uncommon for businesses to receive payments past 30 days – some reaching 60 or even 90 days!
Improving Accounts Receivable Collection Cycle
Most small businesses can use advice on improving their accounts receivable collection cycle. A business that has a sound and efficient billing process can minimize late or non-payments.
One suggestion is to have a complete invoice. Invoices must be easy to understand, detailed, and specific. It should contain all the necessary information that both you and your client can see and understand. Invoices should contain at least the following items:
• Your company’s and your client’s contact information
• Date the invoice was created
• Detail or description of service completed or product delivered
• Total amount due (include itemized amounts if necessary)
• Date when total amount is due
Another recommendation is to immediately generate an invoice as soon as the work has been completed. The sooner your client receives a bill from you the less likely they will forget to pay.
Know Financial Options Available To You
Knowing that oftentimes it takes an average of more than 30 days to get paid it is very important to have sufficient cash on hand to cover business expenses. If improving the accounts receivable collection cycle is not enough to remedy a poor cash flow small businesses must understand financial options available to them.
Traditional banking can assist small businesses with a variety of bank products and services. Because a business has a checking account with a bank there is already a relationship established and an understanding of any challenges that may exist.
If a small business is not bankable alternative financial options such as accounts receivable factoring can help improve cash flow. Factoring allows small businesses to have access to cash that is tied up in accounts receivables. If clients continue to pay slow despite a business owner’s efforts in improving their billing, factoring is a great financial tool to get paid much sooner on work that has been completed.
Ramir Rodriguez is a business development officer for Treasure Valley Factors. He helps businesses understand how factoring can help them get paid sooner on work they have done and grow their business. He has a B.S. in Business Administration with an emphasis in Management from Eastern Oregon University.