Getting paid on time — or better yet, early — for your products or services is critical to having enough cash on hand to pay your expenses. As a small business owner, you likely need cash month to month to pay for inventory, payroll, equipment, rent, etc. Establishing measures to get your invoices paid faster will help alleviate stress and allow you to pay your own bills on time.
The following tips can help.
Create shorter payment terms
Sure, many companies request payment for invoices within 30 days, but that doesn’t mean you have to. If you want or need to be paid faster, ask for payment terms that are less than the standard net-30 time frame. Just remember that many businesses are probably used to having at least 30 days to pay an invoice, so let them know you’ll request payment sooner up front. Don’t surprise your client at invoice time and tell them payment is due in 20 or even 15 days.
It’s also important to be flexible here. Some businesses just might not be able to get your invoice processed within your accelerated pay schedule. If they let you know that ahead of time, you may have no choice but to agree to their terms if you want the job.
Set penalties for overdue invoices — and stick to them
You could have the most organized bookkeeping setup in the world, but it won’t prevent some people from being late with their payment. To minimize the late payers, establish a policy that is clear about the penalty for past-due payments. Do this ahead of time; it’ll be tough to enforce a penalty if you wait until after the due date. If the client sees they would have to pay an additional 2 percent or so for every five days they’re late, they’ll be more likely to get that invoice paid on time — maybe even early.
Offer incentives for early payments
If you plan to penalize those who pay late, why not reward clients who pay ahead of time? You can offer a discount to customers who pay their invoice early. Customers like the fact that they saved money with you, and you’ll have one less invoice to worry about being paid on time. Just make sure the discount is one that you can afford.
Get your invoices out immediately
There’s no reason to delay sending an invoice to your client. Once you’ve completed the job, provided a service or delivered your product, the invoice shouldn’t be far behind. You can’t get paid until you send the invoice. The sooner you do that, the sooner your client can get payment to you.
Sending out an invoice right away also helps get you paid faster because your client will most likely still have the job on the top of their mind. If you wait a week or two to invoice them, they’ll likely move on to other things, and that invoice won’t register as quickly.
Break up your invoices
It’s always better to be paid in full in one payment, but asking that of every client every time may cause delays. If you’re sending out large invoices, some clients may actually be intimidated by having to deal with getting it paid and stick it in a drawer just to avoid it.
If it works within your budget and cash flow plan, try breaking certain large invoices up into smaller increments. Even though the total bill price is the same, receiving payments in installments will feel less daunting, and your client will be more likely to pay the invoice faster. They’ll also be grateful for your flexibility.
Automate your invoicing process
You can cut out a lot of the lag time in your invoice process by managing everything electronically. Cloud accounting software platforms like Crunched can help you set up an invoice template online. As soon as the job is complete, you can email that invoice right out. You’ll get the invoice to them immediately via email vs. several days through the mail. The sooner the client gets it, the faster you’ll be paid.
With cloud accounting software, you can also save time by creating and scheduling recurring invoices for regular clients. Just set it up once, set your send time frame, and the software will automatically send the client their invoice on a regular basis. Cloud accounting software will also keep track of when invoices have been paid and send out reminders as the due date approaches.
Make it easy for your customers to pay
The more easily a client can pay their invoice, the faster you’ll be paid. If a customer can pay you with a credit card or debit card, you’re more likely to get paid sooner. If you only leave them with the option of paying by check, you’ve added more waiting time to when you’ll receive that payment. Crunched cloud accounting software provides online payment technology that will make it easier for your customers to pay you faster.
When it comes to cash flow, one of the toughest issues is dealing with getting paid on time. It can be a headache, but with the right processes, tactics, and technology in place, you can make it so that you’re not only getting paid on time but also getting paid faster.