Ensure You Are Getting Paid On Time
As a small business owner, you will be fantastic at your job. You will provide the best products and services, go above and beyond the call of duty to impress your clients/customers and be a role model in the local community. However, that doesn’t stop people from not paying your invoices on time.
Late payment of invoices is a big challenge for businesses, and the smaller the organisation, the larger the issue. A single late payment might not seem much, but if it is a significantly large amount of money then it could reduce your ability to make payments yourself, which could lead to overdue fees and higher costs for your business.
If too many customers don’t pay their invoices, then it could threaten your business’ survival.
There Are Solutions
Getting your business’ clients to pay on time shouldn’t be much of a challenge. There are simple ways to ensure your business remains in the black and financially secure. For instance, you could take payments upfront. If you bill when the contract is agreed, before any work is either begun or delivered, it will create greater financial security for your business.
However, this isn’t a guarantee. There are lots of different tips and tricks that increase the chance you’ll get paid on time.
Here are a few suggestions for your small business:
1. Send Out Invoices As Soon As Possible
The quicker you send out invoices the sooner they will be paid. The best time to send invoices is either when the contract has been agreed, like we suggested above, or when the goods/services have been delivered.
The longer you leave delivery of the invoice, the less likely the client will pay promptly.
2. Set Expectations From Day One
Before you start work for a client, make sure they understand your payment terms. These can be rather complicated in some circumstances, so use this quick checklist as a guide to providing the right information. In the terms and conditions of payment you should include:
• The date payment is due.
• How the payment should/could be made.
• Any late penalty fees/interest rates.
• When late penalty fees/interest will be added to the invoice.
• The items the invoice relates to.
• If the invoice is a part payment.
• If there is a prior arranged payment schedule.
Setting these guidelines means that clients can’t claim they didn’t know when, how and why they should be making a payment.
3. Split Invoices
When a client orders an additional service to their regular order, raise a new invoice and keep it separate. This prevents a client delaying payment because they don’t understand where the additional fee is coming from.
With two invoices, they can pay their usual one while you deal with the delayed payment of the second invoice – thus giving you more security.
Of course, there is a danger that the client might forget to pay the second invoice. Which is why you must keep on top of payments.
4. Have A Set Delayed Payment Process
When a payment is late, you need to have a consistent process that manages the client and their payment. As soon as the payment is overdue, you need to ensure that you contact the client and remind them about the payment – honest mistakes do happen, and they might have forgotten or lost the paperwork.
If payment is then not received after an agreed timeframe, you should start more proactive measures to recover the debt owed to your business.
5. Use The Right Language On Your Invoices
Whether you’ve created the invoice yourself, used an invoice software suite or just downloaded a template from the internet – there are likely to be improvements you can make to the wording. A study by FreshBooks on their users’ payment terms discovered several common traits in invoices that were paid more quickly:
Politeness had a major impact on how quickly the payment was made. By adding a phrase like ‘thank you for your business’ or ‘please pay your invoice within’ to the bottom of the invoice increased the chance of the invoice being paid by 5%.
In addition, those that used plain English (i.e. 30 days and not Net 30) increased the chance of payment.
Interestingly, those that included a message about interest being charged on late payments increased the length of time it took payments to be made; however, it also increased the chance a payment would be made.
Therefore, it is recommended that you use a message like:
“Thank you for your business. Please send payment within 14 days of receiving this invoice.”
6. Use Positive Reinforcement
When you offer rewards such as discounts for earlier payment, you can increase the chance your clients will make their payment on time or even early.
Yet there are issues with this strategy. Firstly, don’t incentivize yourself out of business. Be sure you can afford the discount. Yet also don’t make it too low. If it doesn’t excite the client, it won’t matter. A good option is about 5%.
7. Gamification Of Invoicing
Gamification is becoming popular in many business activities from staff motivation to marketing. It can also be used to get your invoices paid on time by making a game of it. If you send out all your invoices on a set date/time (i.e. the first working day), then get your clients to compete. Offer a discount off their next invoice if they are the first client to pay.
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8. Set The Right Payment Length
There is a lot of research on the number of days you should give clients to pay. Xero, suggest that if you want payment to be made within 30 days, you must set payment terms at 13 days.
However, other invoice advice states that 21 days is more beneficial for your business and to getting paid on time.
9. Outsource Invoicing
As a small business owner, you are probably very busy and chasing late payers may seem frustrating and time-consuming. After all, you should be servicing the clients who do make payments.
Outsourcing your invoicing and collections processes can be beneficial to your business. It saves you time that can be put to better use and it removes you from the stress of dealing with challenging issues.
Be Good With Your Invoicing Processes
Collecting payments due to you is an essential business operation. However, it can also be frustrating and take up a lot of time. If you don’t want to outsource this operation, then there are tricks that can increase the chance of payment being made within a suitable time frame, while also reducing the time you spend on invoicing and collecting payments.