In your small business, there are few things that are more important than keeping an eye on your cash flow. Few small businesses have enough cash in the bank to continue operations without getting paid by their customers quickly, and even if you can why would you let your money sit in someone else’s bank account? Here are a few tips on how you can get your invoices paid faster.
Clearly State Payment Terms on Your Invoices
The first thing you need to do is let your customers know how long they have to pay your invoice. Your payment terms are typically listed near the bottom of your invoice. Common payment terms are ‘Due on receipt’ which means that you expect them to start the payment process as soon as they receive your invoice or ‘Net 30 days’ which means that you expect to be paid within 30 days.
Many companies offer an incentive to get paid faster, usually a percentage saving if the invoice is paid within a shorter amount of time. ‘2/10 net 30’ is quite common, which means that you’re offering a 2% discount on the value of the invoice if it is paid within 10 days. If it is not paid within 10 days then you expect the full amount within 30 days.
It is also a good idea to list the penalties for late payment, even if you don’t expect to enforce them. You might include something like, ‘Late payment will be subject to 1.5% interest per month’. You don’t have to charge interest if you don’t want to, but having it there means you can if you need to later.
Review your Receivables & Follow Up
You should regularly review your accounts receivable and keep an eye on any invoices that are approaching or past due. You might be a little forgiving if an invoice is a few days overdue because the cheque might have got hung up in the mail, but beyond a few days you should start the follow up process.
A gentle call or email to your customer could resolve things quickly if you not getting paid is an innocent mistake: maybe they didn’t receive the invoice, maybe it got stuck on somebody’s desk waiting for approval, maybe the cheque was cut and has been mailed.
Over time you’ll get a feel for which customers are good at paying and which ones aren’t. Some customers will regularly pay within the payment terms you outline on your invoices, some will regularly try and stretch things. Some will hold off paying until you start bugging them. This is where a professional bookkeeper can really bring good value to your business: they can help you monitor your receivables and keep an eye on making sure your customers are paying when they should.
If Your Customer Still Won’t Pay
Unfortunately, from time to time you’ll run into a customer that just won’t pay. If you have delivered the products or services as agreed then they are obligated to pay.
If you find that they’re not responding to your requests for a payment status update then start keeping a log of all the times you’ve attempted to contact them. Email is a very effective method because you have a history in your ‘Sent Items’ folder, but if your policy is to call them on the phone then keep a log of the date and time, the person you called and what the outcome was (i.e. left voicemail message, talked to them and they said they’d call back, etc.).
At some point you’re probably going to get frustrated that you’re not getting paid despite your best efforts. The next step is to consider legal action like small claims court, depending on the value of the unpaid invoices. Before you file a claim, you should give your customer one last chance to pay your invoices with a formal letter threatening legal action if they don’t pay. You have to be careful how you do this so it’s probably a good idea to involve a lawyer if it gets to this point just to make sure you’re taking all of the necessary steps and doing things right.
If things get to this point then this is another opportunity for your bookkeeper to shine. They’ll be able to guide you through what the appropriate follow up process is, when enough is enough, when it’s time to consider taking legal action and how you should go about that.
Keeping cash flowing is important to any business, and especially small businesses that don’t have large cash reserves they can rely on if their invoices are not paid promptly. Making sure you clearly state your payment terms, keeping an eye on outstanding invoices, and following up with customers once their invoices are overdue will all help keep your cash flow healthy and these are all things that your bookkeeper can help you with.
Simply Bookkeeping1 provides professional bookkeeping services for freelancers, solopreneurs and owners of unincorporated and incorporated businesses. We customize our services based on your needs – we only see some of our clients a few hours a month but others we see on a more regular basis. Our services are reasonably priced and we tightly track the amount of time we spend working for you so you only pay for the services you get.
To learn more about us, please visit our website at www.simplybookkeeping1.com or contact Michele Hyde by phone at (647) 668 – 9363 or by email at firstname.lastname@example.org.
Have Your Say
Do you have customers that continually let your invoices go past due? If so, we’d love to hear from you! Tell us things that you’ve found work well to get you paid faster. Also, please share this article using the social media share buttons – other small business owners might benefit from learning from your best practices!