If you run a business, then you know how crucial cash flow is to your survival. According to BetaKit, 67% of small business owners in Canada (with less than 100 employees) are worried about their cash flow and, on average, Canadian small businesses lose out on approximately $28,885 in potential revenue because they aren’t able to undertake projects or sales due to a lack of cash on hand. One of the best ways to address the issue of insufficient cash flow is to make sure that your invoices are getting paid on time. Here are five tips to help you do just that.
Discuss Payment Terms Up Front / Incentivize Early Payments / Set Up a Payment Schedule
If you make the payment terms a part of your sales pitch instead of an afterthought, you communicate to your client your professionalism and how serious your payment expectations are. This is the time to discuss payment options, due dates and late payment fees. If your client wants to negotiate the price, consider giving them a discount for paying early or at a specified time that saves you from having to make follow-ups. You can also consider making it a policy to take a deposit upfront and setting up a payment schedule so that the final payment is a manageable one that’s due when the work is completed or the product is delivered.
Clear, Easy-To-Understand Invoices
Payment terms, line items, dates, your contact information, pre-tax subtotals, total amount owing and payment due date should all stand out and catch the eye when skimming. Generally speaking, people won’t read every word on an invoice, especially if there’s a lot of them. You may have to include certain passages on your invoice for legal purposes but either way, making sure that the total amount due and the due date stand out from everything else and are placed side-by-side, could make those two pieces of information ‘stick’ in a customer’s mind. It should also go without saying that if you expect to get paid on time, you have to invoice on time.
Shorten the Payment Term
As long as you offer several different payment methods, there’s little reason that a customer would need 30 days to pay you. Of course, this also depends largely on the type of business you’re in and the products or services in question. But the 30-day billing period is based on a payment process that usually involved a “cheque in the mail”. With e-transfers, credit and debit card payments and several third-party apps and services, there’s little reason to wait a month or longer before getting paid. Xero conducted a study of invoices sent through their service and found that while shorter payment terms were more likely to go ‘past due’ the payments were still collected faster. Here’s what they found:
- 1-week payment terms were settled in approximately 2 weeks
- 2-week payment terms were settled in 2-3 weeks
- 3- or 4-week payment terms were settled in about a month
If you’re stressed out about covering your operating expenses, shortening your payment terms might help.
Make Sure Your Invoice Is Going to the Right Person
With larger companies, the person who made the purchase may not be the same person paying the bills. Find out at the time of the sale who is in charge of Accounts Payable and touch base with that person to confirm that s/he received the invoice.
Nobody wants to be annoying or spend too much time ‘chasing’ people for payments. But sometimes clients actually forget about your invoice and polite, yet persistent, reminders ensure that your client is aware of and remembers his/her bill.