One of the boldest things you can do in the early days of running your business is to put time and effort into perfecting your invoicing process. Not only will this save you time and sleepless nights, but it will also give you a much better chance of making a long-standing success of your business.
Late payments and unpaid invoices are a massive issue for small and medium-sized businesses that don’t have the money in the bank to withstand cash flow issues. In many instances, companies go out of business because they experience a cash flow crisis and not because of the quality or desirability of what they offer or sell.
To increase your chances of being paid timeously by your customers, there are a few critical strategies that you need to employ. These include:
Spell Out Your Invoicing Strategy Upfront
Be clear and transparent regarding your payment terms so that there is no confusion or misunderstanding when it comes to payment time. Inform your customers when you expect to get paid after a job. While traditionally, the payment term has tended to be 30 days after concluding the work, digital invoicing has made it possible to demand payment a week to two weeks after doing the work.
Most companies at times offer a discount for early payment. For instance, you could offer a 5% discount on an invoice as an incentive for your customers to pay early. If you want to run a tight ship, you can also opt for late payment penalties or alert them to the fact that if they haven’t paid within 90 days, you will hand over the invoice to a collection agency. Some businesses are worried that these invoicing practices may be heavy-handed, but if you do opt for them, communicate them clearly in your invoice.
Don’t Delay, Go Digital
The sooner you get the invoice to your client, the sooner you will receive payment. It will prove harder to get paid if you leave it long after the job is complete. Also, if you invoice soon after you have delivered your product or service, the value of what you offer will be fresh in the customer’s mind.
With digital invoicing now cost-effective and easily accessible, you can automate the process from quoting through to customer invoicing. You can also set automatic reminders that payment is due a few days ahead of the due date, on the due date, and a few days after the due date.
Routine and Ease of Payment is Everything
If you send across your invoice at the same time every month and make sure it is going to the right person you will not forget. Find out who will be responsible for payments because this is often not the same person as the one who contracted you to do the work.
It is also worth finding out when it is best to invoice them because often companies process payments before a specific date in the month, and if the invoice arrives after that date, you will need to wait for payment until the next payment run.
Give the client various payment options and detail these clearly on the invoice. Clients can then use their preferred method of payment, and the convenience to them could well speed up payment.
Accuracy is Everything
Make sure the information on your invoice is 100% accurate, and the explanations of what you did for the client are in line with the details you specified on your quote. Don’t waste time going back and forward with the client resolving errors or explaining information on the invoice.
Prepare for the Unexpected
Even if you have done everything you can to make it clear when you expect payment and easy for the customer to make a payment, you will still invariably run into invoice payment issues. Before these late payments or non-payments escalate into cash flow issues, it is worth arranging access to invoice finance if you need it. Scrambling at the last minute to cover an unanticipated cash flow crisis is stressful and can potentially derail your business.
An invoice finance company can ensure that you get access to a discounted proportion of the invoiced funds before the customer has paid, with the balance, less the invoice finance company’s portion, due once the client pays in full.
It may seem tedious and time-consuming to set up smart invoice financing for small business strategies. However, running into cash flow issues is the one business challenge you want to avoid at all costs. Putting in the effort at the beginning of the relationship with your customers will give your business with them the best chance of success.