The problems faced by small businesses due to late payments have been very much in the news lately, as a business owner you are very aware of the importance of getting paid on time and that payment delays can seriously disrupt cash flow. When searching for ways to speed up payment, keep in mind that the most effective solutions are often the most simple. The invoice you send your customer is, hands down, the most important communication in regards to getting paid. With a few simple adjustments and additions to your invoices, you can actually speed payment from customers and increase your chances of getting paid.
Please and Thank You
Good manners are always important, but when it comes to invoicing, minding your manners can actually increase the probability of getting paid, by adding ‘please’ or ‘thank you’ to an invoice you can improve that invoice’s likelihood of getting paid by more than 5%.
Make it a habit to ask all of your customers what they require on invoices. It will take some time upfront to make these inquiries, but you will save time and money down the line if you don’t need to re-invoice the customer due to missing information.
How long do you wait to invoice?
The longer you wait to send your invoices out to your clients the longer you will have to wait to receive payment from your client. A week’s delay of sending the invoice to your client would double the amount of time you would need to wait to receive payment. So, the earlier you send out your clients invoice the more likely you are to receive payment faster.
Provide a small discount for early payment
This can be a percentage of the total invoice amount, which often adds up for clients as a cost advantage. For example, a 2% discount on early payment may entice a client to pay the invoice earlier.
Penalize late payments
To encourage earlier payments, you may want to add a percentage fee for late payments (e.g. a 2% fee to invoices not paid within 15 days). These additional costs for being behind on payment can have a large enough impact on your client’s bottom line to motivate a speedy turnaround.
Hold on to work until you get paid
Like the penalty tip, negative reinforcement has to be deployed in certain situations. The goal is to highlight that a working relationship involves transactions where work and payment go hand-in-hand.
Offer a retainer
If the client is providing long-term work, a retainer (.doc) will allow the client to know exactly how much should be paid and when. This helps them manage their budget more effectively, and it may get you paid quicker.
Provide multiple payment methods
If your clients have various options for payment – PayPal, credit and debit card, cheque, bank transfers, etc. – they’ll be more likely to pay and pay faster, particularly online.
Send reminder emails before payment is due
The best way to avoid having delinquent accounts and increase the speed of collections is to send out a friendly reminder email to your clients that their invoice is due the next day. It’s much better than telling them they are late at making a payment. It can be automated with software and significantly reduces the likelihood of that account becoming delinquent.
In nearly all aspects of business, the follow-up will be used time and time again. Odds are you will need to follow up multiple times with multiple clients.
Being a small business owner is often a stressful line of work. The last thing you want is to get caught up chasing down clients who are late on payments when you need to be focusing on other aspects of your business.