7 Tips to Get Your Invoices Paid on Time
5th October 2016 | Business Administration
Cash flow is the lifeblood of small businesses in ways larger organisations often struggle to understand. Very few start-ups and micro businesses can handle 60- or 90-day payment terms – when you are depending on just a handful of clients to meet your own business expenses, prompt payment from all is critical.
Many small business owners are familiar with the stresses of chasing late payments for precisely this reason – one late payment can represent a big chunk of the income you were depending on.
But that can leave a small business between a rock and a hard place. You need the money, but what if you go in too hard and put the client off working with you again? Long term, growing the business means holding on to loyal clients.
7 Top Tips for Timely Payments
So what can you do to avoid potentially stressful confrontations? Here are seven top tips for how to build the kind of relationships which encourage clients to pay on time.
- Be clear about your terms. This is partly a case of setting them out clearly in your contract, but it is also about having good communication. When you are discussing the account prior to it being set up, make sure you explain what your payment terms are, and why you have them. Remember, you are dealing with other business people – if they understand your requirements in relation to your business, they are more likely to stick with them.
- Be prepared to compromise. Following on from the first point, your client may well have a perfectly good reason why they cannot meet your payment terms. That is then all about the art of negotiation and finding a middle ground agreeable to you both. You could try offering an incentive – accept a payment schedule somewhere closer to the clients preferred option, but if they can meet your date, you will offer them cash back on their next invoice.
- Be prompt and accurate. Delays in issuing an invoice may well lead to delays getting paid, and there is not much you can say in protest. Similarly, if you send out an invoice with mistakes on it, your client will come back querying it, and it ends up being issued late all over again. Invoicing can be a time-consuming part of running a business, but it is absolutely vital. Give yourself the time to get it right first time.
- Use invoicing software. If you are still relying on manual record-keeping you really should consider using invoicing software. Most online accounting packages help you improve invoice collection by managing all stages of the invoicing cycle, including preparing quotes, creating invoices, calculating VAT, applying discounts, tracking payments, scheduling reminders, and analysing your invoice collection efforts.
- Accept a variety of payment options. The more choices you give your clients for making payment, the more likely they are to pay on time. They will have their own preferred method, and by allowing this you are increasing your chances of getting a prompt payment. Electronic payments ideally pose the least hassle for either party, so discuss the various options in advance.
- Give discounts for prompt payment. Use a carrot before the stick. A small percentage discount will encourage many clients to make your invoice a priority. The cash reduction will be more than repaid with the certainty of money in the bank and no chasing required.
- Include late payment penalties. As a final protection, don’t be afraid to impose penalties if clients do pay late. They should always be included in the contract and flagged up during negotiations, that way they serve as a deterrent more than a punishment.
Getting paid isn’t a privilege – it’s a right. Be firm with your customers, and stick to the deadlines you set. Providing you deliver the goods or services that you promised, you should always expect your customers to pay you within the terms that you’ve agreed at the start.
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