Research shows that small business owners spend 10 per cent of their day on average chasing payments. During these festive times, when we’re all spending more, this can make it even tougher on a business’s bottom line. However, there are ways you can slash days off the time spent waiting and it all comes down to how you invoice. These six tips could help you get paid quicker ahead of the holidays.
1. Invoice straight away
Your client can’t pay until you’ve invoiced them, so send your bill fast. You want to be in the next pay run.
Clients are also more open to paying when they’ve just received the goods or services that you delivered. Cash in on the goodwill – and their Christmas cheer! There’s no reason to delay. You don’t even have to get back to the office. You can send invoices from your phone.
2. Send clean invoices
Make sure your invoice has all the right information, including a description of the work or product, the date it was delivered, and any client requirements (such as a purchase order number). Some clients have very specific requirements so ask what they need to see on the invoice. If they have to come back to you for more information, you could miss the next pay run. Make the due date clear, too.
3. Ask for prompt payment
Clients used to get weeks to pay invoices, but that’s changing. More than a third of businesses now request payment within a week. Consider doing the same. Your client may want to negotiate for more time – and you should try to be flexible – but starting off at seven days will help set an expectation of prompt payment.
4. Make on-time payment worth its while
Many businesses charge fees for late payment. If you’d like to try that policy, make sure it’s clear on your invoice. Include a line saying something like: “Late fees are assessed after the due date, at the rate of 1.5 per cent per month.”
A more positive approach is to offer a discount for prompt payment. The lure of saving money is a powerful motivator, even if it’s just a few percent discount. You can present it like this on your invoice:
Total due: £4,022
Save 5 per cent if paid by 7 December: £3,821
5. Make it easier to pay
Customers will pay faster if they can use their preferred method to hand over the money. Offer them a variety of options. And be aware that most customers like to pay using credit card or an automated clearing house (like PayPal). Research shows you’ll get paid 10 days sooner if you offer these options.
6. Chase payments
Your job is not done when the invoice goes out the door. You’ll need to follow up with the client to make sure it’s being processed, and online invoicing makes this a lot simpler. When you send online invoices, you can see when it’s been opened and when it’s been paid. If the due date is approaching and it hasn’t been paid, send a reminder. You can set your software up so that the reminder email is sent automatically. If the invoice goes past due, it’s time to make a phone call.
On-time payment is not just your client’s responsibility. There are steps you, the invoicer, can take to speed things along. Use these tips to increase your chances of receiving prompt payment before Christmas, and improve cash flow in your business.
Darren Upson is director of Small Business at Xero.