Entrepreneurs know that getting paid on time is among the most important business goals. A varying cash flow can put your entire business at risk, no matter how educated or skillful you are at what you’re doing.
According to the results of the research conducted by Atradius, a growing number of businesses in both Americas are facing late payments. Since this is a burning issue in many regions, it’s crucial to educate yourself how to ensure faster payments for your enterprise.
We’ve prepared a dozen of practical tips which should help you find creative ways to get paid in a faster and less stressful way.
1. Send invoices immediately
The easiest way to track the accounts receivable and the accounts payable is to issue invoices as you perform a service or sell a product to your client. There are three main reasons for this approach to invoicing:
- Smooth experience for clients – If you enable your customers to demand and receive invoices as they complete using your services, they’ll have a chance to conclude the entire procedure at once. This will urge them to pay you immediately and move on to new projects.
- Easy collaboration with repeat customers – If you have regular customers who like to make their payments at the same time every month, it’s better to always send them invoices the moment they make their purchase.
- Better tracking for your business – Your accounting software will record every issued invoice at once, which will ensure better tracking of your invoices and both accounts receivable and payable for your business.
2. Set clear due dates
Expressing payment deadlines in invoices is often done using the “net terminology”. For instance, if you write Net 30 on your invoice, it means that the client needs to make their payment within 30 days from the invoice date.
Additionally, your invoices can be due within 60 or 90 days from the invoice date, as explained in an article published on Chron.com.
Nevertheless, many business beginners might find this terminology confusing. This may result in late payments and misunderstandings with your less experienced clients. So, what you can do to dodge this inconvenience is to simplify these terms.
For instance, write “Payment due on DD/MM/YYYY” on your invoice and you’ll avoid confusion. Still, you should know that the Americans first write the month and then the date. This is why it’s recommended to go for full month names, to avoid and ambiguity (e.g. Payment due on June 6, 2017).
3. Talk to your loyal clients
When you’re entering the contemporary business arena, you need to bring some strict rules regarding your invoicing and payment flexibility. The most important rule is to leave sentimentality outside this arena.
However, the whole wisdom of running a business is to know when you should make exceptions.
Therefore, you should always talk to your long-term clients and see how to adapt your invoicing policy to meet their needs.
Simply put, it’s less expensive for a business to retain old customers than to acquire new ones. To be more precise, retaining only 5% of your loyal clients should raise your profits from 25% to 95%, according to the article published by The Harvard Business Review.
This is why you should always offer your loyal clients more flexible options when it comes to invoices and payments. They’ll appreciate your effort, which will ensure that most of them pay their obligations on time.
4. Offer discounts for early bloomers
Running a business is a stormy experience, marked by uneven periods of progress and decline.
Since every business needs cash, it’s crucial to incentivize your customers to make their payments as quickly as possible.
One of the most popular options to reach this goal is to give them discounts for early payments. For example, you can add a special addition to your 30-day invoice in which you say that invoices paid in the 15-day time will get a 2% discount or any other discount you prefer.
However, this strategy shouldn’t be used too often. It would be ridiculous to give a discount on a $10 power bank. Therefore, offer these special deals only to important clients and for larger purchases.
5. Impose penalties on late payers
Speaking of leaving emotions out of your business agenda, it’s imperative for small business owners to be rigid when it comes to late payments.
This is even more necessary when you’ve already agreed to some compromises and your customers still miss their deadlines.
However, if you want your late fees to be legitimate, you need to follow these rules:
- Include a part about late fees for late payments in your contracts.
- Declare explicitly what fee percentage refers to what invoice period (e.g., 3% for payers that exceed a 30-day payment period etc.)
- Remind your clients of these fees in regular invoices.
By presenting these special measures to your clients at the beginning of your collaboration, you’ll ensure that they don’t take you for granted. Moreover, you’ll get what’s yours plus some additional fees if they don’t comply with the rules you both accepted at the beginning.
6. Divide large invoices into smaller ones
If you work with some loyal, but late payers, you could try and negotiate different terms with this group of clients.
Some businesses don’t like large, all-in-one invoices.
Therefore, such enterprises should be given an opportunity to pay for the purchased goods in several installments. Instead of issuing a large, 60-day invoice, you could offer to send them small invoices every 15 or so days.
You can benefit from this strategy in three different ways:
- Getting a financial injection every two weeks – It will improve your cash flow.
- Retaining long-term clients – They’ll stay with you when you offer them flexible rates.
- Freeing your stock space – You’ll be able to order new products and improve your sales.
7. Demand a down payment
It’s hard to imagine a businessperson who intentionally refuses to pay another business fellow for a service they have provided for them. Still, sometimes businesspeople abandon a project, simply because they change their mind or start working on something different.
One of the most effective ways of keeping your client on a project is to divide that project into several milestones and demand a down payment.
For instance, you can ask for 20% of the total sum agreed in the estimate to be transferred to your account in advance.
Additionally, they should pay you a certain amount of money on every milestone. On the one hand, you’ll ensure that they don’t vanish in the middle of the project. On the other, you’ll get paid in several equal amounts.
This payment plan should be beneficial for both interested parties.
8. Describe your work
Sometimes your clients will be surprised by the amount of money they need to pay when you finish working on their project. As a result, they might stall and avoid paying you for your work. Business owners who want to avoid this situation need to be proactive and explain every single detail of their work during the negotiations.
What’s more, creating a detailed estimate is a great way of setting the rules of the game in advance.
Every single second of your work and every single gram of raw materials you’re going to use on that project should be included in this document. By describing every work feature in advance, you’ll ensure that your client understands and accepts (or refuses) your conditions.
Finally, they’ll be legally obliged to pay you for a project they agreed to.
9. Utilize the power of reminders
Sometimes it’s necessary to gradually educate your late payers. So, apart from offering discounts for early payments and talking to your troubled clients, you should use the power of reminders in invoices.
By doing so, you’ll approach your customers in a clever way and remind them when they need to pay you without being aggressive or impolite.
What you can do is set your invoice software to send out a reminder to all your clients on the same date. For instance, if their payments are due 60 days from the invoice date, you can send them a reminder 20 days before the deadline.
As opposed to that, you can also personalize these reminders in accordance with your own or your client’s preferences.
These reminders are great means of establishing smooth communication with your clients while giving your best to inform them of their obligations towards your business.
10. Employ polite communication
Since we’ve mentioned timely communication with your clients, it’s vital to mention the importance of polite phrases in your invoices. In line with that, you may want to start your invoices and reminders with “Dear X” and a simple “Please”, before you move to a more serious communication tone.
Apart from that, make sure to write “Thank you” or even “Thanks” at the end of every official financial template you send to your clients. The former is a better option for your new clients, while the latter one will leave a stronger emotional impression on your long-term customers.
Being decisive and resolute, but polite and careful in communication with your customers and debtors will persuade them to cover their debts on time.
11. Work with invoice factoring companies
In a case of larger debts and unsuccessful repeat invoicing, business owners can turn to invoice factoring companies. These business entities simply buy your invoice and the belonging debt. Here’s an example that will show you how it works.
Let’s say a client owes you $5,000. A factoring company will buy this invoice and transfer a part of the total sum to your account within 48 hours from the moment you reach an agreement. For this case, let’s say it’s 75% of the total sum, i.e. $3,750. So, you’ll get this amount of money almost immediately. The rest of the money from the invoice will be collected when the client makes the payment for the invoiced sum of money.
However, bear in mind that the factoring company will charge their fees for every month until your client pays for the invoice, so negotiate these terms in advance. Still, you’ll get most of your money at once and the majority of the remaining money eventually.
What’s more, this company will take over any potential legal measures, which will save your time and money.
12. Revise your invoicing system
If there are a few late payers among your business partners, it’s most probably up to them and their business problems. The tips analyzed in this article will help your discipline them.
However, if only a few clients make their payments on time and most other clients are late, there might be something wrong with your invoicing system.
Because of that, you should regularly update your software tools, as well as the data related to your clients.
Furthermore, talk to your accountant and tell them to keep you informed of the innovations in the field of invoicing. Or, check this guide on how to choose the right accounting software for your business.
Since new systems offer more advanced, automated options, make sure you keep pace with these changes.
Conclusion
Being an entrepreneur in this day and age is a challenging task. On the one hand, you can count on the connective power of the Internet and numerous invoicing tools. On the other, you can come across various obstacles in getting paid on time, which is a serious threat to every business. Since there isn’t a universal panacea for such issues, every entrepreneur needs to find the best cure for their problems.
The ideas discussed in this article will be great aides in ensuring regular payments and creating the best invoicing system for your business.
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