We have looked previously at cash flow and how important it is that your clients pay an invoice on time. If they delay payments regularly it can be impossible to run your business profitably.
There are ways to improve how you deal with invoices and your customers. It’s true that customers are important but your bank balance is just as crucial to your success. How you handle clients when it comes to payments can make or break a business.
Invoice details
Accounting software has helped make invoicing a lot simpler. But even if you use the likes of Xero, you still can’t be slapdash when it comes to information on your invoice.
Having the right details on an invoice makes it easier for you and your client to track and avoids confusion. If some of the details are wrong, some accounts departments of larger companies won’t process the invoice for payment. As a result, you may not know about the problem until you contact them about it.
They may ask you to resubmit your invoice, which adds to the delay in getting paid. Make sure your invoice includes the following information:
- Name and address of your client/customer
- Tax ID of the company (if applicable)
- Name and address of the recipient
- Invoice number
- Invoice date
- Date of service or delivery of product
- Details about the service/product delivered
- Net price, VAT (if you are registered for it) and gross price
Contact details
Although it sounds obvious, make sure you clearly include your contact details on invoices. The easier it is for them to contact you, the better.
All businesses face a problem from time to time, so being able to ask a question or highlight a problem helps clear any confusion. It can also avoid issues later.
Don’t delay
Online accountancy software has made the delivery of invoices simpler and easy to track. Even if you don’t use such software yet, you can still email your invoices.
Either way, do so as soon as you have delivered your product or service. Some businesses can request payment in advance; if you can do so then that is the best option.
Remember, if you delay your invoice by 2 or 3 weeks, then you’ll wait longer for payment no matter what your terms. Also, make sure your terms are clear. It’s better to have a 14-day payment term than 30 days if you can.
It means you can chase unpaid invoices sooner. Your clients will also get used to shorter terms over time.
Payment options
Many businesses send an invoice and then wait the required and agreed number of days before chasing payments. Hopefully, your clients pay you quickly when they receive their invoice. But some people are forgetful or receive so many emails they miss your invoice.
Consider offering payment options as that reduces confusion and issues. If you can offer direct debits or online payments, encourage regular clients to use the alternatives. Even small businesses can set up direct debits these days cost-effectively.
Consider using Go Cardless or other systems that take a very small percentage for direct debits. You have peace of mind knowing customers are paying regularly, which is better than chasing payments. Remember, cash flowing in is vital so even if it’s 95% of what is owed on an invoice it’s better than 0%!
Balanced approach
If a payment is late and has exceeded your due period, be serious and lenient, where necessary. You can charge ‘statutory interest’ if another business is late paying for goods or services. The government’s website always carries the latest legal charges.
You must be approachable when it comes to late payments. Don’t just charge interest if it’s a regular customer who usually pays on time.
Your client should be happy to contact you and explain their issue. Explain how their lateness affects your business and offer a very small discount in future if they agree to pay future invoices early.
This may seem counterproductive, but remember you need cash flowing in so it can flow out!
Personal touch
You don’t have to be best buddies with your clients and customers, but you can be personal. Relationships are important in business, so listen and offer the personal touch when dealing with late payments.
If a customer or client sees the person behind the invoice, it makes them more emotionally invested and they will want to ensure you are paid.
Be persistent
Some people who buy your goods or services will drag their feet from time to time, unfortunately. Being stroppy may have the opposite effect to what you are hoping to achieve, so continue to be polite. It is frustrating, but getting an invoice paid is important.
If you still haven’t been paid after exhausting all options, you can consider legal proceedings. These are costly, of course, and you may end up paying out more than the invoice is worth.
Invoice factoring
You can consider invoice factoring if you desperately need cash flowing in and can’t afford legal action. An outside company will give you a percentage of the invoice, as you effectively sell the invoice to them.
Using this process frees up your time because the factoring company chases the payment. Some companies appear to make contact on your behalf, but most will explain they are an outside debt company and are now owed the money.
If you have a good relationship with your client, this move could sour relationships. However, if the client regularly fails to pay on time, you may decide it’s a relationship you cannot afford to keep!
If you need help in getting invoices paid more quickly or have other tips, why not speak to us today?