According to research by Access Commercial Finance, more than a third of small business (34%) expect some regular clients to pay invoices late. Of those, the majority (76%) say they are confident of being paid, but do have to plan for late payments from clients. The majority of business paid late by regular clients say they typically expect their invoice to be settled within two weeks of their stated payment period.
The same study revealed that almost 4 in 10 (37%) small businesses admit they raise invoices later than they’d like to, due to being focused on delivery. The top reason for this habit is lack of resource, with 39% saying they neglect financial admin until they have spare time. A number of respondents to the study said they set aside weekends or bank holidays to handle invoicing, resulting in invoices going out days or sometimes weeks after delivery.
Regardless of how great your business is, the most important part is getting paid. The second most important is getting paid on time. Here is some advice on how to get paid sooner by your customers.
Customers don’t always pay on time, which can dent your cashflow. Yet managing your cashflow is so important to the success of your business. Having a firm grip on all of your finances both incoming and outgoing will make sure that as much of it as possible finds a home in your account. So it makes sense to ensure that you do everything possible to make customers pay.
How do you normally get paid?
If you are a service industry used to direct contact with your paying customers, then it makes sense to ensure that the facility for immediate payment is close to hand. A hand-held card reader or mobile device set up for payments can help you get paid immediately, rather than waiting for a bank transfer or a cheque payment.
But for others, this might not be possible. More often you’ll find yourself dealing with the assigned accounts person or the just the accounts department. If so then you’ll need have ensured certain basics have been adhered to like appropriate purchase order numbers, detailed and clear line items, and above all, a timely sent invoice with a clear ‘due by’ date is essential.
Making sure new customers pay on time, every time
Before even starting a new job with a new customer make sure you get agreement of your payment terms, either in writing or by email. This will include when you expect to get paid and what will happen if payment isn’t made.
At the start of each job make sure the customer is aware of the scope and timeframe of the job. Inform them of whether they will be expected to pay upfront, receive split invoices to cover purchases or ensure that payment is made on time. Make them aware that any undelivered items will get placed on hold if payment isn’t received.
Without doubt the best way of getting paid on time, is by ensuring they are aware of consequences of non-payment. Having experience of the implications of the terms and conditions stated on your invoice is great future deterrent.
Just make sure they are fully aware of how non-payment effects your business, because they will be equally quick to charge you for missed deliveries and standing time!
Get to know your aged debtors
Most accountancy software will allow you to generate an aged debtor report. Run this regularly and ensure you chase up your payments when they fall due. It’ll also reveal which customers pay quicker and which need additional focus.
Very often there are reasons some customers pay slower than others. It could be fewer employees or an MD wearing multiple hats and doubling up as the accounts payable department. But it could also be that the company is in financial difficulty, awaiting payments themselves or just very disorganised.
Identifying which customers these are and the reasons why can enable you to formulate a payment plan with them. Or you can just visit them to enhance your relationship with the accounts team to help you get paid quicker.
Offer rewards or incentives to paying quicker
One way of getting paid sooner is by offering a financial incentive for doing so. People will pay much quicker if it means paying less. It doesn’t even have to be a large incentive, just a small discount will do it. But make sure you are aware of the effect to your profit margins for doing so.
Remember: business is business
It’s never nice having to chase customers for money, especially if you enjoy a close relationship with them, very often they will have good reasons for delaying your payment. But when chasing payment you need to ensure complete professionalism – this is your income after all, you are not a credit agency.
However awkward it is to phone up customers up and ask them for money, this is the most important job you’ll have and being firm-but-fair is always the key mantra. It may be useful to establish a dedicated email address for your accounts department, even if it’s obvious you are behind it. However you won’t be able to hide behind emails for long.
However you get paid, make sure that your customers are fully aware of the total amount they owe and the timescales in which they are required to pay. Make it as easy for them to pay as soon as possible and ensure you have done everything in your power to help them.
But whatever you do and no matter how fair you are, sometimes customers and suppliers will fall out over money.