Approximately 60 percent of small businesses will fail as a result of cash flow issues. Much of this problem is a direct result of payments either made late, or not at all. Billing can be a real nuisance for many small businesses who count on invoices being paid on time and in full to continue profitable operations.
Fortunately, there are steps that can be taken to help increase the odds of invoices for your goods or services being paid in a timely fashion.
Send Invoices Out Immediately
It is important that small businesses make invoicing a top priority. While this may seem obvious, the earlier the invoices are issued, the faster payment will come through. Ideally, the invoice should be sent out as soon as the goods or services have been provided.
Many entrepreneurs will attest to the fact that juggling multiple tasks at once can make it more of a challenge to get to the invoicing, which can often be pushed aside. When invoicing is on the top of the priority list, it will be much more likely to be carried out sooner rather than later.
Make it as Easy as Possible to Get Paid
Customers are more likely to pay invoices faster when the transaction is simplified. If there are a number of hurdles that need to be jumped over, invoices are less likely to be paid off in a timely fashion.
For instance, if customers must mail checks or credit card information, it will take days or even weeks to receive payment. Not only is it inconvenient for customers to fill out this documentation and physically head over to the mailbox, payment receipt will be dependent on postal service to make it to you. Instead, accepting credit card payments electronically can speed up payment both because it is more convenient for customers, and it is instant.
These days, it is expected that customers will have the option to make payments electronically. Electronic payments can offer savings between 30 to 40 percent when compared to using traditional paper checks.
There are dozens of online payment solutions that can be considered, including PayPal and Google Wallet. With Google Wallet, for instance, requesting payment is as easy as attaching a photo to an email. If you already have a Google account, users can simply compose a message to the payee, and click the dollar symbol in the toolbar of the message window. PayPal is another easy option, where money is requested by filling in the blanks in the ‘Request Money’ tab.
With all the tools available to make things easier to both request money and send it, there is no reason why these elements cannot be utilized to make getting paid as easy as possible.
Be Clear About Payment Deadlines
Not only should invoices clearly stipulate the exact amount owed, they should also concisely detail the deadline for payment receipt. Specifying detailed information such as this will make things clearer for the customer, and will also generate a sense of urgency.
For example, if a specific invoice must be paid within 7 days, make sure this information is clearly spelled out on the invoice. You should also consider specifying any consequences for overdue payments. Providing as much information as possible will help ensure that both you and your customers are clear about what is expected.
Offer Incentives For Early Payments
In addition to communicating potential consequences of late payments, such as penalty fees, it may also be quite helpful to offer customers incentives for paying early. Examples of incentives include offering a small discount, offers for future credits, or gift certificates if payment is received within a certain time frame.
Including incentives – which should be specified on the invoice itself – will immediately motivate customers to respond. Essentially, offering incentives will communicate to your customers that you appreciate their business and their efforts to make prompt payments.
Make an Effort to Follow Up
Invoices that are outstanding should be followed up with right away. While you do not want to seem invasive or aggressive, you should still implement a certain timeline after due dates for invoices pass.
To be proactive, consider sending friendly reminders about upcoming payment due dates. For instance, consider contacting customers two weeks before payments are due. If the due date comes and goes without payment, it is customary to contact the customer the following day to determine when the invoice will be paid.
Keep Tabs on Your Invoicing Performance
An effective accounting system should offer businesses a detailed summary of accounts receivables in a timely manner. These reports can be generated a number of ways, such as by due date, customer, and amount.
This system can come in the form of a dedicated accounting specialist in-house, or through a specialized accounting software system that automatically generates these reports according to how you program it. This way, you will always have the reports you require on demand, which will help you more effectively manage the performance of your invoice payments.
Don’t Forget Your Manners
In the world of business, common courtesy should never be ignored, even when requesting payments. A simple “please” and “thank you” can be much more effective at encouraging prompt payment from customers, as opposed to demanding it. Not only should these friendly phrases be spoken verbally, they should also be stamped on each invoice.
Studies suggest that adding such terms on invoices increases the likelihood of them being paid by over 5 percent. This easy strategy can translate into a lot more money coming in on time every year.
Without prompt payments, your business’s revenues could suffer. The everyday operation costs of a business will continue, even during times when payments are late. Rather than allowing the business cash flow to suffer and falling behind while waiting on payments, a small business loan can be used to bridge the business finance gap and keep things on track.