5 min read
There are several much-discussed ways to speed up client and customer payments to improve business cash flow, including:
expanding payment options,
clarifying payment terms,
penalties for late payments,
incentives for on-time payment,
including a payment link in an invoice email.
However, whilst some of these strategies may mitigate late payments to a degree, they are only a temporary sticking plaster. The crux of the issue is that most businesses rely on manual action from clients to get paid, meaning your clients are in control of your payment process!
The answer is to use a pull payment method such as Direct Debit, to automate payment collection and put you back in control of when you get paid. Automation of late payment processes using pull payment methods like Direct Debit can eliminate late payments allowing you to:
enjoy consistent cash flow,
decrease administrative errors,
save time by automating payment collection,
reduce the need for invoice chasing,
Focus on business growth tasks.
Instant Bank Pay is a GoCardless product that offers instant payment confirmation, eliminating the traditional waiting period associated with manual bank payments, and providing real-time, same-day transfers that simplify the transaction process for customers. These combined strategies can help businesses establish a healthy, steady cash flow, fostering financial stability and growth.
The global payment timings index studied over 40 million payments from more than 65,000 businesses and found most businesses take between 20 and 30 days to receive payment. But there’s no need to wait that long.
Businesses of all shapes and sizes rely on healthy cash flow to function, and a speedy cash flow is a healthy cash flow. Indeed, by reducing the 20–30 days timing window to just 3.6 days, it’s thought businesses could optimise revenue by 86%.
So, how can we expedite this process? Let's explore four potential options:
1. Expand your payment options
In an increasingly digital era, businesses that operate on a cash-only basis are at a disadvantage. Card and digital wallet options not only cater to consumer preferences but also streamline your accounting and billing processes, despite incurring relatively high fees.
Adopting solutions like GoCardless offers flexibility in payments, enabling you to process bank payments through known and trusted schemes such as Direct Debit. In a survey, it was found that bank payments were the number one preferred way to pay for invoices:
54% of business payers
25% of consumers
Without offering these bank payment options to your customers, you are losing sales.
2. Bill up-front
Especially for small businesses that rely on building relationships with clients, billing, or at least taking a partial payment, upfront may seem counterintuitive. However, clients who value your offerings won't mind paying upfront, and this practice can bolster your cash flow significantly. While it may not always be practical, demonstrating the need to cover labour costs or purchases essential to fulfil an order can warrant this approach.
GoCardless’s bank payment product Instant Bank Pay allows you take all or partial payment upfront, or at any time. Once your customer completes the billing request, you will receive instant confirmation in your dashboard or API. Payments made before 11am on business days will reach your account on the same day, otherwise, it takes up to one business day.
3. Automate late payment processes with Direct Debit
While conventional advice might urge businesses to chase overdue invoices or establish a penalty system for late payments, this method can be time-consuming and often ineffective. Instead, a pull payment automation method such as Direct Debit eliminates the headache of late payments.
By scheduling regular payments through Direct Debit, you can ensure consistent and reliable cash flow, negating the need to constantly chase up overdue invoices. This system automatically debits the agreed amount from your client's account into yours, preventing delayed or forgotten payments. It also has the added advantage of reducing errors and saving valuable administration time.
4. Introduce instant bank payments
Adding to our strategies for speedy payments, Instant Bank Pay provides an efficient means of transferring funds, enabling real-time, same-day transfers, eliminating the conventional waiting period associated with bank transfers. Customers simply need to click a link to pay, facilitating an effortless transaction process.
Accounting firm Blu Sky significantly streamlined its customer payments by integrating GoCardless with Xero. Blu Sky CEO Jon Dudgeon, credits GoCardless for their agility and business growth, stating,
Before the transition, the company was constantly a week behind in their financial reporting. With GoCardless, they now have near real-time financial data, which aids in swift decision-making.
The implementation of GoCardless led to a dramatic increase in payment efficiency. Today, 90% of Blu Sky's customers use GoCardless, an option the finance team wishes was leveraged by all. Jon notes,
Working with GoCardless also revolutionised Blu Sky's credit control cycle by automatically highlighting due payments. This system provides real-time tracking and significantly reduces the emotional strain of chasing failed payments.
After switching to a contracted agreement with GoCardless, Blu Sky gained a more predictable and valuable financial strategy. Jon found that other providers’ solutions did not meet their needs, saying,
Overall, GoCardless has been instrumental in Blu Sky's growth. Jon believes in the scalability of GoCardless and the positive impact it's had on his business, saying,
With GoCardless, Blu Sky can now confidently plan for future expansion.
Billing upfront or partially upfront improves cash flow, particularly when costs are associated with order fulfilment.
Automating late payment processes using pull payment methods like Direct Debit can ensure a consistent cash flow, decrease administrative errors, and save time by reducing the need for invoice chasing.
Introducing instant bank payments can speed up the payment process by eliminating the traditional waiting period associated with bank transfers, thus simplifying the transaction process for customers.
Implementing strategies for flexible, recurring payments can help businesses establish a steady cash flow, thereby fostering financial stability and growth.
We can help
Struggling with late payments as a small business owner? GoCardless is your solution, designed to handle financial transactions efficiently, regardless of your business type or location. Automating payment collection with GoCardless Direct Debit merchants get paid 47% faster, relieving stress and freeing up time for growth.
GoCardless makes it quick and easy to get started, and with no contracts or long-term commitment required, there’s no risk. You can set up instant, one-off, or recurring payments in the merchant dashboard in just a few clicks, and GoCardless automatically creates and sends all the necessary forms, doing all the heavy lifting for you. You can also connect to GoCardless via over 350 partner apps, such as Xero and Quickbooks.
Frequently asked questions
How can I make my clients pay faster?
To expedite client payments, streamline your invoicing process with automated systems and adopt various online payment solutions like digital wallets, direct bank transfers, and cryptocurrency. Ensure invoices are clear, concise, and issued promptly upon service delivery, incorporating a 'Pay Now' button to facilitate immediate payment. Implement early payment incentives and late fee penalties to motivate timely payment. Furthermore, adopting a subscription model for recurring services can ensure a continuous cash flow. Lastly, communicate payment expectations clearly and maintain open channels for dialogue to promptly address any concerns.
What are billing strategies?
Billing strategies are comprehensive plans that businesses implement to streamline and optimise their invoicing and payment collection processes. These strategies often encompass various methods such as simplifying the billing process, offering multiple payment options including digital wallets and automated recurring payments, integrating real-time payment technology for instant payments, providing early payment discounts or incentives, and utilising smart payment reminders or dunning management to reduce the possibility of late or failed payments. The ultimate goal of these strategies is to increase the efficiency and speed of cash flow into the business, thereby improving the company's financial health and stability. By tailoring these strategies to meet customer preferences and habits, businesses can also enhance customer satisfaction and retention, contributing to long-term revenue growth.
How do you deal with a slow-to-pay customer?
Dealing with a slow-to-pay client effectively involves multiple strategies that facilitate and incentivise prompt payment. Firstly, clarify payment terms and expectations at the outset of a business relationship to ensure a mutual understanding. Then, streamline the invoicing process by using an online invoicing system with options for various payment methods including credit card, bank transfer, and online payment platforms. Next, consider offering early payment incentives or discounts and imposing late payment penalties. Additionally, regularly follow up with overdue invoices using polite yet firm reminders. Lastly, for chronically late-paying clients, renegotiate terms or consider withholding services until payment is received. These steps not only speed up payments but also foster a culture of respect for the goods or services provided.