How to Get Your Invoices Paid on Time
Many small and micro businesses face problems with customers paying late. Partial payment and dubious disputes over charges may also delay payment, causing unnecessary administrative costs and cash flow issues.
Now that the new financial year has started, give your invoicing systems a review and assess whether you can improve your practices and get your invoices paid on time every time.
It’s Not Always the Customer’s Fault!
Sure, there are some customers who stretch payment times or default on payment altogether. However, many times the customer has good intentions, but either doesn’t read the terms or simply forgets. Often the business is at fault by not making the terms and payment methods clear and easy. Another common issue is that businesses do not include banking details on invoices.
Sometimes disputes arise because the business has not communicated clearly with the customer about changes to the original estimate or has not let the customer know about issues that have arisen that affect the total bill. This is common with service providers, particularly those who give verbal or informal estimates, and do not keep the customer informed of progress. They then issue a final invoice not realising that the customer had a very different idea of what that total would be.
Many businesses don’t get paid on time because they don’t invoice their customers at the right time. If goods or services are supplied but not invoiced until much later, it sends a message to the customer that you are not in a hurry to get paid, and perhaps they can leave a similar delay in paying you. This is particularly a problem for micro and small sole traders who are doing all or most of the income-producing work in the business, as well as running all the administrative aspects of the business. Administration and billing often get postponed.
It is your job to invoice customers at the appropriate time, to make your payment terms and methods really clear on every agreement and invoice, and to politely remind customers when they are late paying.
Make it Easy and Use the Right Technology
If you find yourself struggling with invoicing, consider these factors when reviewing your systems.
- Use online software such as Xero that has a mobile application.
- Set up default invoice templates that clearly include your bank details and payment terms.
- Offer a variety of payment methods, such as bank transfer, Bpay, PayPal or credit card.
- Look at add-on apps available to assist with job management and invoicing so you don’t lose out by forgetting to include time or expenses.
- If you have different payment terms for different customers, set up the default terms in each customer’s contact details to make it easy to invoice according to the customer’s terms.
- For new customers, make sure you capture all essential details for invoicing and contacting the customer again in future.
- If you charge your customers for billable expenses, use the software’s tools to track billable expenses charged and received.
- Get a point-of-sale app and card reader for your mobile phone to accept immediate payments while on the go.
- Use your software customer payments reports to track the average number of days it takes to get your invoices paid.
- Consider whether it is time to get someone else to do your invoicing and customer administration.
Clear Payment Terms
Making your payment terms clear seems straightforward. Yet we bookkeepers see many invoices that have missing information, unclear terms or no payment terms at all. Clear payment terms listed on every invoice are essential.
- Clearly state the payment terms and the actual due date of the invoice.
- Check the invoicing standards or norms for your industry. Are you invoicing within a similar time frame as others?
- Consider offering early payment discounts as a way to encourage prompt payment. Set this up in your software so that it is automatically calculated.
- Do others in your industry charge late payment fees? If this is standard practice, get advice on setting this up in your software as a fee or percentage and make sure you have the late fees clearly stated in your agreements and invoice payment terms.
- Set up automatic reminder emails for overdue invoices. You may also like to set up default emails to remind customers of an approaching due date. Tailor the templates with your own polite and professional wording.
Chasing Payments
It is sometimes hard to understand why customers delay payment when you have upheld your end of the business deal and supplied the goods or services contracted. However, getting personal and emotional about it makes chasing payment much harder. You are simply asking for monetary payment in exchange for the goods or services already supplied as a business transaction. Try to remain professional, clear and respectful.
Many small businesses choose not to pursue debts, but rather write them off as a ‘bad debt’ because of unwillingness to address the matter directly with the customer. This encourages late or non-payment because the customer is not pursued and is allowed to get away with it.
I encourage you to follow up payment for goods or services you have supplied as a business transaction. Clear and professional communication is the starting place. You may have more ability than you think to persuade the customer to pay—just by being clear, professional, polite and genuine. This way you have a better chance of reminding the customer of the value you provide beyond just the monetary value of the goods or services provided.
There are also cost effective suppliers who offer debt recovery services. If you really don’t want to deal with this yourself, engage an expert to do it on your behalf.
Implement These Tips for the New Financial Year
- List terms and conditions clearly on agreements, invoices and website.
- Make sure methods of payment and bank details are clear on invoices.
- Offer a ‘pay online’ option on your invoices.
- Regularly schedule time for your own administration and invoicing.
- Set up automatic overdue invoice reminder emails.
- Check the status of unpaid invoices and follow up with customers regularly. Don’t leave it too long to follow up.
- Get relevant apps on your mobile phone to make invoicing and administration easier.
Need Help?
Talk to me if you are interested in getting set up on Xero to make running your business more efficient and enjoyable.