You’ve done the work, completed the job to a mutually-agreed standard, sent off your invoice… and now you just, well, wait. And maybe wait some more.

You’re entirely at the mercy of your client, and when they decide to pay you.

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has been very vocal on the matter of unpaid invoices, and worked hard to decrease the amount of time small businesses wait between when an invoice is sent and payment is received.

However, many small business owners are still waiting 60 or even 90 days for companies to pay their invoices, causing significant cash flow issues.

So, what can you do to avoid this? Here’s our six-step guide to get you started:

1. Establish an application process

When was the last time you asked for credit from a large supplier? If it was a large corporation, you would have had to go through an application process, and you may have been asked to pay a percentage, or the full amount, up front. Why wouldn’t you do something similar with your customers?

While you may not have the infrastructure for full credit checks, you could put in place a system to assess their ability to pay you on time. For example, you could ask them to complete a questionnaire or on-boarding form that addresses past expenditure in your field and their expectations around their budget. Also, you could ask to speak to some other suppliers as part of your reference check, and quiz them on the client’s propensity to pay.

2. Discuss and document payment terms up front

As part of the application process, document your payment terms in writing. These should include when you expect payment (e.g. 30 days after the invoice date or 30 days after end-of-month), and what steps you will take if payment isn’t made on time (e.g. stop further sales, send in the debt collectors, apply penalty rates to the invoice).

You could stipulate milestone payments, for example, 50% up front, 25% at a midpoint and 25% on the completion of the project. Discuss these with all new customers and have them sign the agreement so there can be no misunderstandings down the track.

3. Create a follow-up process

Once you’ve gone through the process of providing credit and have issued invoices, the next step is to watch your cash flow and ensure you receive payment on time.

If you don’t receive payment, follow through on the steps you’ve indicated you will take in your payment terms. Make sure that you not only send reminders and statements, but that you also call to find out why the payment is delayed.

You then might choose to offer other options, like credit card payments or portion payments.

4. Credit card payments

When talking to a difficult customer, one option, if you have the facilities, is to suggest they pay their outstanding invoice with a credit card. The downside is that it will cost you merchant fees (unless your payment terms noted that merchant-fee charges will be added). However, it could be the fastest solution that improves your cash flow and clears the outstanding invoice.

5. Portion payments

Entering into this type of arrangement with a customer must be carefully considered. Perhaps the customer can pay an amount weekly and subsequently pay cash-on-delivery for ongoing purchases. This may keep your ongoing relationship steady while also recouping the overdue debt.

6. Debt collectors or legal action

There may come a time when you’ve exhausted all of your options – or you simply haven’t been able to get in contact with the customer, despite your best efforts. If this is the case, then in accordance with your payment terms it may be necessary to call in the debt collectors or take legal action.

Sometimes the only way to improve your business cash flow is to tighten up your payment terms. By putting rules in place for new customers and following through diligently and in a timely manner, you can keep the cash flowing in while maintaining solid client relationships.