Stats show that not getting paid on time is the number one problem businesses are facing.
How big of a problem?
One study showed that 82 percent of small businesses and startups fail because of cash-flow problems. In another study, Xero found that out of 12 million invoices, 60% of them were paid late. It's obvious that not getting paid is more than an irritation - it can sink your business. But, how do you get paid on time? While there’s no magic answer, here’s 7 simple ways you can cut down your receivables and start getting paid on time.
Start With A Strong Agreement
One of the first steps you need to take with your client is to set payment terms. Do you expect payment 7 days after they receive the invoice? Or is it 15, 30, or even 45?
No matter what you decide, make the payment terms clear to your client and have them agree in writing. Creating clear payment terms doesn't mean that you don't trust your clients. All you're doing is setting professional expectations from the start. Having a lawyer look over your payment agreements is a good idea, to make sure they're legally sound.
If you don’t explicitly state when you expect to get paid, it's awkward to chase your customer for payment.
Decide Who Receives The Invoices
It’s important to figure out who will receive the invoices on your client’s side. The person you’re dealing with may not be the same person in charge of paying bills. Many businesses don't handle all of their own books, they have separate bookkeepers to manage them.
So, you need to get a name, phone number, email address, and a mailing address for the person in charge of paying invoices. It's easy for invoices to get lost if they go to the wrong person, and a lost invoice is an unpaid invoice.
A little basic contact information can make getting paid on time a whole lot easier.
Send Your Invoices On Time
If you don’t send invoices to clients on time, you won’t get paid on time. (I know, not exactly a revolutionary idea).
If you aren't using bookkeeping software to organize invoices and finances, consider integrating one into your business. At Rotessa, we’re big fans of QuickBooks Online and Xero (we've integrated our app with both of theirs!)
Quality bookkeeping software gives you the power to track customers and invoices, so nothing slips by unnoticed. Trying to do it in Excel sheets or *gasp* by paper technically works, but it's clunky and frustrating. A reliable bookkeeping software helps you send out invoices exactly when they're due, which keeps your bank balance happy.
There's lots of great bookkeeping software for businesses of any size, so find one you like and never forget to send an invoice.
Create Clear, Obvious Invoices
Ever looked at an invoice and found it impossible to read? If you want to get paid on time, don’t have confusing invoices.
Brand your invoice with your logo and business name. You want your customers to know who the invoice is from at a glance. Also ensure the invoice explains what they’re paying for, and how much they’re paying for it. Confusing invoices make confused customers, and increase the time you or your employees spend on the phone or email explaining invoices.
The best part is you don't even need to hire a designer to make a concise invoice! There's free tools online, like Invoice Generator or Shopify's Free Invoice Generator, that let you create beautiful invoices in a few clicks. If you have Microsoft Office, you can find free invoice templates for Word here.
Oh, and include the payment terms on the invoice. It’s a polite reminder for them to abide by their agreement.
Offer An Incentive And Get Paid Early
You expect your clients to pay you on time, but you don’t expect them to pay early.
Offering an incentive for early payments, like a small discount on their bill, can encourage your clients to pay you before the due date. Remember to consider margins when you create the discount, you don’t want to give away too much.
You'd be surprised how even a small reward can have a big impact on customers paying their bills early.
Sometimes, You Have To Pick Up The Phone
I'll be honest, this is not a popular option. Making a collections call is uncomfortable. But, sometimes the old-fashioned approach can help with getting paid on time.
If you or your billing department notices that a certain client is having issues paying on time, or is overdue, try a friendly phone call instead of an email. When you do call, don’t sound accusing or like you're judging them. No one wants to feel like a criminal, or be embarrassed, for not paying.
If you're not sure how to make a collections call, this blog post from Anytime Collect covers it perfectly.
A collections call doesn't have to be painful. If done in a polite and friendly way, it can be an easy way to settle unpaid invoices.
Consider An Automatic Recurring Payment Solution
If your business generates recurring invoices for your clients, like service fees, memberships, or rent payments, then consider using automated payment collection!
While cheques and cash can be a hassle, and credit cards can be expensive, automatic payments are a simple and affordable way to get paid on time.
Getting started with automatic payments isn't a difficult process. In fact, I wrote a guide on getting started with automatic payments here. There are lots of great pre-authorized debit service providers, so find the one that works best for your needs!
While the stats show that getting paid on time is one of the biggest challenges facing small and large businesses, it doesn’t have to be in your business! Building relationships with your clients, having clear payment terms, and using the right tools like bookkeeping software and automated payment collection will keep your bank account, and your clients, smiling.