Nobody likes dealing with debt, whether you owe money to someone else, or a customer is late paying you. Yet, dealing with overdue invoices is one of the most common challenges small business owners face.
As a sole trader, freelancer or tradesperson, maintaining a steady cash flow is essential for the success of your business. Late payments can damage your financial stability and create a lot of unnecessary stress. They affect not only your business operations but also your relationship with your customer or clients and even suppliers, as cash flow problems typically ripple down the supply chain.
Dealing with customer debt is usually an unpleasant activity that wastes a lot of your time but it can often be avoided with some simple steps in place. In this blog post, we’ll explore five quick to action tips to help you get paid quickly and avoid overdue invoices.
Implementing these tactics can save you time by streamlining your invoicing process, increase repeat business by building positive client or customer relationships and ensure a more sustainable business by keeping your bank balance healthy.
1. Set Clear Payment Terms from the Start
Clearly outline your payment terms and expectations upfront before beginning any work. This includes payment due dates, preferred payment methods and any late fees for overdue invoices.
Transparent payment terms help manage customer expectations or prevent misunderstandings that can delay payment.
Don’t be afraid to have conversations around money, sometimes your customers or clients might not be confident dealing with their finances and will appreciate you taking the lead. Approaching money conversations in a friendly yet confident way, will help build positive relationships with your customers or clients from the start.
2. Request Partial Payments, Deposits or Milestone Payments
For longer projects, high-value contracts or bigger jobs, consider requesting partial/milestone payments or deposits upfront. This not only helps secure both yours and your customer’s commitment to the work but also ensures a steady cash flow throughout the delivery of the work, job or project.
This doesn’t need to be a difficult conversation if you word it in a way that demonstrates the benefits to your customers. Splitting payments can ease the financial burden on them and when payments are related to a work milestone, such as specific stages in a job or project, they can feel reassured that the job is underway and being completed on time and on budget.
Split payments can also help when a job or contract might increase or decrease depending on needs, once the work commences. If a chunk of work looks to become more expensive due to an unexpected increase in materials or labour, it can be easier for your customers to pay smaller amounts in stages, rather than any increases being added all together at the end.
Taking a deposit can cover any initial outlay you might have, like buying materials or hiring staff for a specific job. This means you won’t be out of pocket at the start of a project and it also protects you from losses, if a client or customer has an unexpected problem and needs to cancel or reduce the workload.
3. Proactive Communication and Reminders
Let’s face it – life gets busy and even the best customers in the world can forget when a payment is due. Help your clients or customers to manage their finances better by being proactive with your communication and reminders.
Don’t wait until the due date to chase for payment or tackle any potential payment issues.
Setting up a payment process doesn’t need to be complex or come across as pushy when you do it right. Keep it simple by following up with any invoices you send, through an email or phone call to check if it’s been received and if there’s any questions.
If you have quite lengthy payment terms of 30 days or more, contacting your customers a few days before payment is due, can help remind them of their financial commitments. Even if you work with larger companies that have accounts departments and payment procedures in place, invoices can be lost, misplaced or stuck on a desk.
When you do it correctly, proactive communication can provide great customer service with friendly reminders of upcoming payment deadlines and the opportunity to tackle any concerns before payment is due. It’s even easier to create a payment reminder process by using an invoicing system, like Invoicenet to help you keep on top of due dates, so you can schedule payment conversations.
4. Offer Convenient Payment Methods
Although you might have a preferred method, your customers or clients will have theirs too. When you provide various convenient payment methods, you make it easier for clients to pay you. Look for multiple payment methods that can work for both you and your customers like, bank transfers, direct debits or card payments. It will reduce the hassle for your customers and help you get paid on time.
Try not to make assumptions.
Despite the UK being one of the most advanced countries for developing and using financial technology, some people prefer to use cash and that’s not only the public but other small businesses too. A recent survey by one of the biggest business loan lenders in Europe (iwoca) confirmed that nearly 50% of small to medium businesses still use cash every month. If you’re not sure what payment options would work best for your customers, you can always ask this question when you create the payment terms, that we mentioned in tip 1 above.
5. Screen Clients and Contracts
Being selective about new clients, customers and projects can feel counterproductive when you need to make money in your business. However, taking the time to confirm a potential new customer or client is a good fit, can save you a lot of time, money and stress when an invoice is due.
If possible, check a potential customer’s creditworthiness, past payment history and reputation within your professional network or on online review sites before agreeing to work with them. This can be easier when your customer is another business.
If you sell high value services or products to the public and you have a delay between delivery and payment, it might be worth looking at professional services that provide a level of protection for your business, including insurance, credit check agencies or payment management companies.
If your customer or client provides a contract, review it carefully, including the small print. Make sure the payment terms work for both you and your customer and don’t be afraid to ask questions or discuss your concerns. If you’re unsure about any detail, seek independent professional advice before signing.
THE BOTTOM LINE
Dealing with overdue invoices can be a challenge.
Luckily, the majority of customers or clients miss payments because of simple forgetfulness or because they don’t query an invoice until it’s time to pay. Setting up some simple steps to check if a customer has received their invoice or has any questions prior to the due date, can help to reduce the frequency of late payments.
Being proactive with communication can also go a long way to encouraging your clients or customers to pay on time. In some cases, you might receive your money early with the invoice reminder triggering a payment from a customer.
Having a robust payment system in place from the start, including vetting potential new customers and having clear payment terms can help to avoid overdue invoices later down the line. Invoicing tools like Invoicenet can help you create a smooth payment process by keeping track of all your invoices, customers and due dates in one place.
