Eight tips to make sure your invoices are paid on time
On the face of it, paying bills slightly late doesn’t seem like that much of a problem. However, when every business is doing the same, there is a knock-on effect that impacts everyone’s cash flow, business survival and even the economy as a whole.
Australia has, unfortunately, developed a culture of lax attitudes toward prompt invoice payment. In fact, we are one of the slowest-paying countries in the world. The top three reasons cited include invoices not being processed, insufficient funds or accounts being ‘lost’ in the system and/or stuck in a bottleneck.
The Invoice Market Report SME Cash Flow Crisis Report found that, on average, the country’s small-to-medium sized enterprises are owed more than $38,000 in unpaid accounts. This adds up to $76 billion in outstanding invoices at any one time, nationally, potentially crippling businesses’ opportunity for growth, the report authors warned.
Not all is lost, because there are ways to help speed up invoice payment time. Here are eight of the best:
1) Make sure your invoices are clear and understandable
This is a surprisingly common mistake many businesses make. Ensure all details are correct, easy to understand and there is no ambiguity that will result in a call from your client’s accounts team.
Details to include:
- A description of the products and/or services provided
- The total amount payable
- The date or the period work was completed
- Whether there are outstanding amounts and the details for these
- The due date
- Payment options. Specify if you do not accept certain methods – especially if they are commonplace elsewhere
- Any extras such as deliveries, discounts or extra fees
- Specify if there is GST included
- Your full business details including phone number, contact person and ABN.
2) Offer clients easy payment methods
Everyone is busy these days and we all want the most convenient way to get things done. Are you stuck with what has been the company tradition and only letting people pay by cheque or money transfer, for example? Why not allow payment online with a credit card, through PayPal or Google Wallet, or BPay by phone? Maybe even allow people to simply call up and give credit card details over the phone, if necessary.
If you do have the capabilities to allow online payments, make sure they don’t need to create a customer account. This will slow the process down and will annoy people every time they have to fish out their password and account details. Plus, nobody wants to be spammed with newsletters and offers from your business when all they wanted to do was pay a bill.
3) Invoice online
It’s true that online payments are now commonplace and the same is true for online invoicing. Still, plenty of businesses are spending the time posting out a paper invoice, which naturally includes stationery, ink and postage costs, only to wait while it languishes in someone’s in-tray (see below about invoicing the CEO or business owner).
Instead, send it online. The accounts team will receive it immediately and there’ll be an electronic paper trail so you will know where your account went. This method is faster, more convenient, often includes the ability to send multiple invoices, and it will help you be more organised with reminder procedures.
4) Positive incentives for early payment
While this may not suit all businesses, an early payment incentive is a carrot that many customers will jump at. A negative payment incentive, on the other hand, would be to charge a fee. If you offer positive reinforcement that the customer will get something pleasant out of paying as soon as possible, you will save yourself time and heartache in chasing down payments (or ones that just don’t come at all).
5) Make sure you have a contact person
Sending the invoice to the busy CEO will often see the bill get temporarily waylaid and potentially lost in the system. Make sure you have the name and direct number of the relevant person you need to speak with. This will often be a different person to the one who organised the work.
Particularly if it’s an ongoing work relationship, keeping in touch with the relevant person will mean they’ll be aware of any nuances of the account. If there are any problems you won’t be calling multiple people and waste precious time having to explain the situation over and over. Plus, it’s good practice to build a relationship with those you routinely have contact with.
6) Invoice as soon as possible
While most businesses request payment within 30 days, it is a rare occurrence to be paid in this timeframe. Send your invoice as soon as possible because the sooner your supplier receives the invoice, the sooner your business will receive payment. There is no problem with sending the invoice as soon as the work is completed – or even before, depending on the type of service. You are not being unfair or rude by asking to be paid for work you have completed.
7) Have a standard procedure to follow-up overdue accounts
Don’t wait until things spiral out of control and there is a cash flow problem in your business. Put together standard procedures to ensure payments are followed up in an efficient and timely manner.
Firstly, don’t wait until the account is a month overdue; send a friendly but firm reminder, and follow up again with a phone call if the account is still left unpaid. Create a standardised script for these follow-up calls and emails. While you are completely within your rights to get paid on time, over-the-top aggression over a two-week overdue payment is inappropriate, could damage future relations with this client and give your business a bad reputation.
If there are several accounts for the same client overdue, make sure you include these all together, with clear details (date of work completion, individual amounts, any amounts that have already been paid, and invoice numbers) so it isn’t confusing.
8) Explain your terms up-front
Put everything in writing, either in a contract or in a statement of terms. This way, the client cannot say they were unsure of procedures. Make it clear what the payment expectations are, if there are late fees applicable, extra fees that may be tacked on in certain situations, whether there are upfront payments or a retainer, and perhaps even the payment options you do and do not offer.
A cash flow crisis is frequently cited as the reason for business failure. Don’t let this happen to your business. Create standard, efficient procedures to keep yourself ahead of the game. Why not give Reep a try? With live access to your financial data, Reep is software that creates cash flow forecasts updated in real time. Try the free Reep trial here.