Published: 24th Sep 17
Categories: Money, Success
How To Get Prompt Payment From Your Clients
How To Get Prompt Payment From Your Clients
Struggling to get prompt payment from your clients? Well don’t panic, you’re not alone.
One of the biggest headaches for small business owners can be maintaining a steady cashflow. Even though a business may be making all the right numbers on paper, the reality is that outgoing payments – staff, utilities and suppliers – still need to be made, even if your clients are late in paying you.
Chasing late payments can be time-consuming and stressful business for small retailers.
In extreme cases, persistently late payments can mean dipping into cash reserves, overdrafts or even additional business loans just to keep the business afloat. The problem hits smaller businesses particularly hard, as many already operate on very lean margins. The time you spend with your ‘accounts team’ hat on chasing up late payments is time that you should be spending on actual work and growing the business.
So what can you do to reduce the risk of your clients paying late?
Recognise that it doesn’t have to be this way! No one can guarantee to change your customers overnight into prompt payers; however, there are a few practical checks you can make today to ensure you have the basics right.
Your payment terms
In a perfect world, how soon would you like your clients to make payments? How does this measure up to the time they actually take? Whether deliberately or not, the reality can be that many debtors may not even look at your invoice until several weeks after you send it, so it pays to be clear up front about what you expect. Whilst 30-day terms may seem to be the norm, there is nothing to stop you asking for payment within 14 or even 7 days. The important thing is to set this out clearly at the start of your relationship, so there is no confusion over what is expected.
When to invoice?
When juggling the various demands of a small business, it can be tempting to put invoicing to the back of the queue. This is a mistake – your clients will not be able to pay you until you actually ask them to. It is paramount to get your invoices out as soon as work is completed, especially if you already anticipate payment delays. If an invoice is for recent work, there’s the additional benefit that it’s probably still fresh in the mind of your customer and they are more likely to action your request for payment immediately.
What do your invoices say?
A major reason for invoices to be rejected is that they are unclear or incomplete. It is worth taking some time to make sure the basic layout and structure of your invoice is easy to read. There are a number of automated packages which can help with this, we use Xero with our clients and highly recommend it to all small businesses. The total amount owed, due date and methods of payment required should be easy to find, along with contact details for any queries.
Cover the basics
Along with a well-designed framework, it goes without saying your invoice should include a clear description of the work done, relevant dates and the number of hours or products billable. Many customers may also require a purchase order number or cost centre code to feature on invoices too. It’s worth having a discussion with your clients as to what you need to include to ensure that your invoices are not rejected. Reissuing invoices because of a missing reference number will harm your cashflow and cost you time.
For small retailers, this is often much harder than actually issuing the invoice. You may have to balance the need to maintain a friendly relationship with your customer whilst also being firm enough to insist on payment for your services. For larger companies, these two roles are often managed by totally separate teams, making it easier to play ‘good cop/bad cop’. The small business owner, unfortunately, has to be both. Having an automated system can help manage this – many allow you to schedule email reminder notifications directly to your customers. Your accountant may also offer support with managing late payment reminders, so it’s worth talking to them about any additional services they offer which allow you to focus on the mainstays of your business.
Prompt payment is possible!
By making a few small changes to the way you approach your invoicing, you can make a big difference to your cashflow. Why not take some time this week to check you have the points above covered? And if you decide you need some help from a great team that specialising in retail and hospitality businesses, then speak to us at Virgate Accounts.