Sending an invoice is only part of the process of getting paid. If you want to receive your money faster, there are steps you can take to encourage your customers to pay you quickly.
Sending an invoice is only part of the process of getting paid. If you want to receive your money faster, there are steps you can take to encourage your customers to pay you quickly. This is important because it will improve your cash flow – the rate at which money comes into your business. Poor cash flow is one of the major causes of business failure.
Agree payment terms before you start
Before you begin working for a new client, agree payment terms with them. How quickly will they pay your invoices? Getting this agreed upfront means there's no confusion down the track. It sets the clients expectations about payment before you start the work. It’s advisable to keep your payment terms tight – days rather than weeks or months – to maintain decent credit control. If possible, get them to agree in writing to pay you within a certain time-frame.
Offer prompt payment discounts
You can give incentives to customers to pay early by offering them discounts. For example, you may offer a prompt payment discount of 5%, taking that percentage off the total owed if a bill is paid within 14 days rather than 30. Other credit terms might be 1/10, net 30, meaning a customer could deduct 1% of the sum owed if the payment was made within 10 days rather than the full amount being due within 30 days of the invoice being issued.
Pros and cons of offering discounts Use discounts with caution. You deserve to be paid in full for the goods or services you have provided. Only offer discounts if the benefit to your cash flow is greater than the small loss of revenue.
Payment discounts can stimulate payments and provide working capital. On the flip side, some customers may try to abuse the goodwill gesture and stretch out payment terms anyway, hoping to pay the discounted rate in the end, which could lead to a dispute. Agreements like these must be closely monitored, which can take time and effort. If your business operates on low margins, you may have little give in your pricing to allow for such a strategy.
Discuss with your accountant, and maybe run some financial models, to see if offering a discount makes financial sense. Also explore whether other options might achieve the desired outcome. If you’re looking for working capital, is there a cheaper solution, such as invoice factoring (selling your invoice debts to a company that will chase the money owed)? Or could switching to an automated, pull based, payment method like Direct Debit achieve the same outcome at a lower cost?
Invoice as soon as possible
Send your invoice as soon as you can after the goods or services have been supplied. The sooner a client receives an invoice, the sooner they can pay it. Being prompt also means they will receive your invoice when the value of your work is still fresh in their mind.
Follow up invoices
Don't just 'fire and forget' – follow up unpaid invoices, politely but firmly. Invoices might be ignored, lost in the mail or left unopened in the recipient's spam email folder. So follow up and make sure your invoice has been not only received, but actually opened and read.
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