How to Get Paid on Time
Here are a few stats to keep small business owners awake at night. Cashflow is responsible, for 82% of of all business failures. Around 60% of businesses have enough money in the bank for three months or less, and 6% have none at all. 50,000 small businesses go under every year because of late payments.
It won’t take a genius to notice that these three stats are related. Cashflow shortages cause business failure – even for businesses which are doing well. Late invoices cause those cash flow shortages. It’s a massive problem which costs UK businesses approximately £60bn every year.
Governments routinely face calls to do more to encourage late payments, but in reality, there’s a limit they can do. Perhaps they can reduce maximum payment terms. Maybe they can increase the possible fines for later payers. Ultimately, though, it’s impossible to reach into the accounting departments of these companies and make them press send.
There are, though, things small businesses can do. As so often, many of the answers lie in the accounts department. For many businesses accounts are a passive thing – a question of keeping the numbers more or less in cheque and little more. However, those who take a more proactive approach tend to find that accounts can help drive better performance. One of the ways they can do this is to get your invoices paid more quickly.
The earlier you invoice, the earlier you get paid. It stands to reason, but customers are much more likely to pay if the invoice is prompt than if you send it late. The payment departments of businesses can be complex. It’s easy for invoices to get lost in the system or forgotten about. Invoicing quickly encourages prompt action which makes it more likely your invoice will be processed promptly.
On top of that, there are those toxic businesses which routinely pay late. A small minority will actively avoid paying invoices unless they are chased for it. Invoicing late signals to them that you may also be late in chasing your invoices up.
Either way, it pays to set the wheels in motion as quickly as possible, to reduce delays in payments.
Set payment terms
You can’t expect quick payment if you’re not crystal clear about your payment terms. You may decide to shorten your payment terms or demand a deposit upfront. Whatever you decide, you should state this clearly and politely on your invoice.
You may also be able to offer incentives to some companies to encourage faster payments, such as early payment discounts.
Many larger businesses understand the importance of helping out their smaller suppliers. It may be possible to negotiate more favourable payment terms or ensure that you are paid a proportion of your invoice up front.
If you have a good accounts system, you should be able note different payment terms for different clients. This helps your accounts department see what is due from which customers and when.
As a business grows, so does your accounts department. You’ll find yourself doing more business and inevitably, generating more invoices. Unless you scale up your administration to match your growth, things can start to slip through the net. Invoices may be left un-chased, and you may struggle to see what money you should be owed. The more proactive you are the better. When invoices are due, it’s worth sending a polite reminder, with further reminders for those which are late.
Again, a good accounts system can keep all your data in order. It lets you quickly pull up reports which detail the status of each job, what invoices have been sent out, when they’re due and what needs chasing. It can allow you to generate templates and automatically sends out payment reminders according to an agreed schedule.
Make it easy to pay
The easier it is for a company to pay, the quicker you’ll get your money. For example, some companies find it much easier to make payments which have an option for payments from a company credit card, than ones which will need to be processed by the bank. The first process requires your client to simply click pay, while the second could invoice going through the labyrinthine finance department.
Fortunately, there are many different ways for clients to pay – be it through bank transfer, payment or a specialist payment processes. Many of these can connect directly to your invoicing software giving you the ability to simply have a ‘pay now’ option on your invoice.
The best of these packages, focus as much on the customer as anything else. The easier and more pleasant the payment experience is, the more quickly they will be likely to pay.
Look for tools which offer some or all of the following features:
- Compatibility with many card types.
- Ability to pay from any device.
- Quick processing times.
- Automatic transfers to your account.
- Provides a clear and straightforward payment form.
- Clear and crisp invoice templates.
The rule is the same for any business – the more barriers you erect to payment, the more likely it is you’ll be struggling to get paid on time.
It’s easy to under-estimate the cost administration can have on your business. Every process, from creating an invoice, to sending it and issuing reminders takes time which will in turn cost your business money.
The latest invoicing systems can automate many of these processes for you. They may have a selection of clear templates which you can tailor to you own needs, and the ability to automatically tasks such as sending reminders and transferring money to your bank account, with data quickly added to the relevant sections.
This reduces the burden of your day-to-day administration as well as the extra costs which late payment can cause.
Get paid faster
The one thing all of these points has in common is that they mean being on top of your finances. You might purchase specialist accounting software, recruit accountants or hire an accountancy firm. Whatever options you take, you want the process to be fast, seamless, efficient and provide you with a clear overview of your true financial position.
The latest accounts software such as Xero can let you see all the information you need in a few clicks. They make it easy to create invoices, send them, establish payment terms and chase them up. You can see when invoices have been paid, what’s outstanding and which of your clients tend to pay faster than the others.
At 3 Wise Bears, we provide services to both freelancers and small business helping them get their financial systems in order. Having experts take this job on frees your own internal resources will allow you to focus on other matters and, most importantly, will help you to get paid more quickly and get the cash coming in as quickly as it should.