Many people think that once you’re earning enough to make a passive income, you can simply sit back, relax, and never worry about money again. But, for those who are earning a passive income, this isn’t always the case. When running a business which brings in a steady income for yourself, one thing is absolutely essential – that your invoices are paid on time, and in full. When payments start falling behind, your business can quickly start to follow suit. Ensuring that payments are made when due without any issues is vital to not only the success of your business, but also to making sure that you have stable finances.
But, as any business owner will know, not all clients are model. Invoices can go unpaid for long periods of time, causing unnecessary stress and disruption. So, what can you do in order to ensure that you are paid when due each and every time? We’ve put together some top tips on the matter.
Invoice factoring, or invoice financing, is a sure-fire way to ensure that you receive the money that you are due, regardless of whether or not the client adheres to your payment due dates and instructions. With invoice factoring, you can turn your current, but unpaid invoices into cash that can then be paid straight into your bank account. The way this works is actually quite simple.
Once you have invoiced your client or customer, you will ‘sell’ the invoice to the factor. In return you will receive an advance, which is usually around seventy to ninety percent of the total value of the invoice. With this cash to hand, there is no need for you to worry about being short on finances, missing your own payments, or being unable to afford business costs. Once your client, known as the ‘account debtor’ has made their required payment, you will then receive a ‘rebate’ for the remaining funds which you are owed. You will also be required to pay a fee to the factoring company, which is usually calculated at a small percentage of the total invoice. This method is becoming more and more popular with many business owners, as it allows them to maintain a stable cash flow even when dealing with problematic clients.
The terms set out by most businesses mean that you can wait, often up to ninety days, before your invoices are paid. But, there is absolutely no reason why you should have to wait any longer than that. Often, when a client has broken promises, become difficult to get in touch with, or defaulted on an agreed automatic payment, they have no intention of paying their debt or are dealing with a financial situation of their own which is making it difficult for them to make the payment.
By hiring a debt collection company, you can pass over the responsibility of claiming the payment to somebody else, giving you the time that you need to take care of all of the other aspects of your business. When you are spending your time chasing unpaid invoices, you are losing time that you could be spending elsewhere. Debt collection professionals are also fully trained to deal with non-payments and are often very successful in recovering due payments, whether this be in full or as part of a long-term repayment agreement. Debt recovery companies also tend to work on a ‘no win, no fee’ style basis, meaning that you will only be charged by them if they are successful.
Before you have even sent the invoice to your client, there are a number of different things you can do in order to encourage them to make the payment in full and as quickly as possible. One of the most popular methods that you can use to achieve this is to offer a small discount on an invoice which is paid before a certain date. By offering your client a discount, you have given them an incentive to make the payment in the form of saving them some money. Even small discounts of around 5% can be hugely effective, especially if the invoice is being sent out to a long-term, regular client who could potentially see large savings over time just by paying an invoice as early as possible.
When it comes to creating a passive income, there’s definitely a lot of effort which needs to be put into ensuring that payments are received. Thankfully, there are some great means and methods of achieving this.