A key issue in managing your cash flow is getting paid by your customers as quickly as possible. Since most businesses don’t get paid upfront in cash and rely on issuing invoices to customers, it’s really important to speed up the time to get your invoices paid ASAP.
We sat down with Noel Tiufino from My Accounts to get his expert thoughts on this. Here are 7 tips to get your invoices paid faster and improve your cash flow.
IMPROVE YOUR INVOICES
Make sure your invoices are top notch. Set very clear expectations and guidelines to your customers.
1) Set payment terms
Tell your customers when you expect them to pay you. Set payment terms and list the Due Date (e.g. 27 Feb 2015) in the invoice. Noel recommends letting your customers know about your payment terms on your Engagement Letter or Terms of Trade documents. This ensures you set the right expectations from the start.
If you don’t get paid on the spot, we suggest that you offer 7 day or 21 day terms. From our analysis, these options get you paid quicker than not offering terms. See why in our related blog post.
2) Offer multiple payment methods
The easier you make it for your customers to pay you, the quicker they will pay you. Most businesses offer Electronic Funds Transfer (EFT) as the main option. Noel suggests that you can investigate other methods like PayPal, online Credit Card Merchant facilities (like Stripe) and others.
3) Send out invoices as soon as you can
As soon as you finish a job or get to a key invoicing milestone, make sure to send out the invoice immediately. If you don’t send the invoice, your customers won’t pay.
CARROTS & STICKS
You can also offer incentives and penalties to encourage customers to pay earlier / on time.
4) Offer early payment discounts
This typically works when you currently offer 30 day terms (or longer). You can offer a 1% to 2% discount for payment within 14 days. No point offering 30 days early payment if your terms are only 14 days!
To be effective, make sure you add the details of the discount in the invoice: - the $ amount to be paid after discount; and - the date they need to pay by to get the discount.
5) Impose late payment penalties
Tell your clients that late payment will incur late fees. You can typically state in your invoice that every 30 days late will incur 2% interest fee.
FOLLOW UP AFTER THE INVOICE
After you send the invoice, you should be persistent with getting paid. But make sure you are polite about it :)
6) Send out reminders
You can email or SMS your customers to remind them about your invoice. Noel suggest that you should do three follow-ups: - 2 days before due date reminder; - 1 days after due date reminder; - 7 days after due date reminder.
There are lots of great online software that can help you do this automatically.
7) Face-to-face follow-up
Nothing harder saying no to someone face-to-face. The same applies for your customers when you ask for their payment. But you don’t really want to arrange a client meeting to chase up payment. Instead, you can ask your customer feedback on the job you did, or if they have more work for you coming up. Then drop in the payment question during the meeting.
Also, think about leveraging technology to save travel time. A Skype video call works well here.
About Noel Tiufino
Noel is the Director of My Accounts, a team of professional bookkeepers & accountants that are passionate about helping small business. Whether it’s implementing systems to improve cash-flow or providing in-depth management reporting, the experienced team at My Accounts are experts in providing clarity to small business owners. Follow My Accounts on Twitter.