Managing your money
Top 5 Invoicing Practices to get Your Customers to Pay On Time
Getting paid on time is crucial for businesses today. It only takes one late payment to disrupt your cash flow, particularly if you’re a small business that relies on getting paid each month to stay operational.
According to Bacs, the organisation responsible for UK automated payments, the average payment debt owed to businesses comes to over £32,000. Not surprisingly, this has been known to cause problems such as businesses having to pay their suppliers late and not being able to pay their staff on time. A further 20% of businesses also have trouble paying energy bills and rent. While Company Loans are a viable short term solution, it's worrying is that 29% of businesses are now also relying on overdrafts to help make up for the cash flow shortfalls; with overdrafts often racking up huge interest rates, keeping a business afloat can become increasingly difficult.
Although late payments can be near impossible to avoid, there are some best practices you can adopt to increase your chances of getting paid on time.
1. Do it on your own terms
There’s a good reason why we’re constantly told to get everything in writing, and the same applies to your invoicing process. Getting your terms drawn up and agreed upfront could save you a lot of hassle later on as you’ll have an official document that you can refer back to. It also means that both parties are clear on what’s expected when it comes to delivering payments - having this in writing could make all the difference if your customer is thinking of putting off your invoice.
When drawing up your terms make sure to include:
The timeframe that you want to be paid in (within 30 days for example)
If a percentage of the payment needs to be paid upfront
What happens in the event of a late payment - you might want to introduce a late fee or interest rate to cover your back
If there are any incentives for early payments - some business offer a small discount if payments are made ahead of schedule
2. Make it easy for your customers
You want to make it as easy as possible for customers to pay you; this means invoicing them straight away and not giving them any reason to pay you late. You’ll also want to make sure that all your invoices are clearly formatted with all the relevant information. It only takes one missing detail to hold up a payment. You could also consider branding your invoices with your company logo so that it looks more professional and reputable.
Make sure to include:
The date of supply (tax point), and the date of the invoice
Your business name, address and contact details
The full name of your customer and address
Your VAT number, if you are a VAT registered business
How you want to be paid (giving more than one option - for example PayPal - can make it easier for customers to pay you)
A unique identification number that can be used as a reference point
A clear description of what you’re charging for and when this was delivered
The full amount owed with itemised charges if necessary
3. Remember to keep track of everything
Keeping on top of your paperwork can save you lots of time and hassle when managing your invoices - there are even particular storage requirements for VAT records. This means tracking which invoices have been paid, which are upcoming and which are outstanding. You can manage this in Excel, or if you have a large number of ingoings and outgoings, it could be worth automating some of these. Invest in some inexpensive software such as FreshBooks or QuickBooks - these can help automatically track the status of all your invoices and send out late payment reminders on your behalf. Most software can also be accessed remotely which is great if you’re on-the-go.
4. Stay on top of late payments
Following up payments is probably one of the biggest headaches that small businesses face. Each business will have their own process when chasing up customers, but it’s a good idea to send the first reminder when the invoice is 3-7 days overdue, and perhaps most effective to do this with a phone call that is harder to ignore. Treat this one as a gentle reminder that the payment is now late and attach the original document for quick reference. Second reminders can be sent once the payment is 30 days overdue before giving a final notice a week later (depending on your timeframes). It’s always worth having a secondary contact that you can follow up with or copy into your emails.
Where possible always try to resolve late payments between you and your customer - but if it’s looking like you won’t be receiving the payment then you may need to take action. You can find out more about how to do this and your rights here.
5. Keep it friendly
A strong relationship with your customer is really important when it comes to getting paid. Always remember to thank them after your invoice has been processed and acknowledge early or prompt payments. This can go a long way in maintaining a good relationship and ensuring your future payments are processed on time.
Being paid late can be really frustrating and have a huge impact on your business. However, taking control early on can make a real difference. By setting up terms upfront and making sure you’ve delivered everything you need to, you’ll be in a stronger position to chase outstanding invoices and better manage your cash flow.