A trouble many businesses face is a delayed or late invoice repayment time.
This can be especially troublesome for small businesses who rely on invoices being paid on time to keep a steady cash flow. Xero’s research shows that approximately 50 000 businesses fail due to cash flow problems each year in the UK alone. Therefore, it is clearly critical for businesses to optimise their cash flow wherever they can.
Although this blog will specifically focus on tricks you can use to speed up your invoice payments, our blog on Sources of Funding: 9 Types with Examples covers many ways businesses can improve their cash flow. If you don’t yet know how to write an invoice, we suggest reading our explanatory blog 10 Simple Steps on How to Make an Invoice.
10 Tips to improve your invoices:
1. Invoice Immediately
An easy way to get paid faster is being able to generate the invoice as soon as the customer has received the order. Not only does this make the invoice loom over your customer for longer, but also the need to pay for your product/service will be at the forefront of their mind.
Similarly invoicing quickly can help you because the work done/goods provided will be fresh in your mind. This will likely make the invoice a clearer document. In turn, it will get paid quicker.
2. Create Clear Invoices
As implied previously, a clearer invoice will help you get paid quicker. A messy invoice will make information difficult to find, confuse your customer and tarnish your brand image. Therefore it is important to have a sleek invoice design which helps the customer understand why he is paying the invoice; this will encourage them to pay.
A clear design will have the most important information being displayed clearly. Such as the grand total of the invoice and the payment deadline. Similarly a good design will itemise the layout. Having the goods/services/tax with descriptions and in a list.
3. Enforce Late Fees
This incentivises the client not to miss the payment date and it gives the invoice urgency. This results in the client being far more likely to pay the invoice on time.
However, you should generally discuss late fees with the client beforehand and then restate them clearly in the payment terms section of your invoice. Therefore there is to be no misunderstanding of how much is to be paid and when the payment is due.
4. Include Early Payment Incentives
On the other end of customer incentivisation is using early payment discounts. If the deadline for an invoice is, for example, a month, having a discount of 5% if it is paid within the first 14 days can often drastically reduce the time your customer will take to pay the invoice. Resulting in your business having a much faster cash flow.
Although many times the discounts might not save your customer tons of money, it does make your brand image seem more reputable. Like polite wording, having a discount shows that your company values their role as a customer.
5. Request Deposits
An effective way to help ensure payment for an invoice is by having an initial deposit. This payment term works effectively for larger and longer term projects. The deposit itself is a source of funding and it will give your business money in its accounts while it is working on the project. As a result, your business will likely be able to pay off any debts that come as a result of the project.
6. Polite but Firm Language
Use simple yet professional language throughout your invoice. Overcomplicating sentences is unnecessary and unhelpful. Adding simple words such as “please” and “thank you” not only make your invoice more polite but can often have a calmer, more authoritative tone which helps your invoice get paid faster.
7. Accept More Payment Options
Giving your customers flexibility often decreases the time it takes them to pay you. It makes the invoicing process easier for them and by accepting more payment options, you likely cover their quickest method of money transfer.
Accepting payment methods such as PayPal, for example, allows the customer to transfer you money almost instantaneously and securely. This speeds up the invoice process.
8. Regular and Shorter Payment Terms
Even if you are prepared to wait longer for a payment, having shorter payment terms will ensure that other invoices will be paid at the same speed.
Firstly, having shorter payment terms at regular intervals builds invoice payment into your customers routine. Once it becomes a routine payment, it becomes increasingly unlikely that they are going to pay.
Secondly, giving a longer deadline doesn’t always increase the chances that the customer will pay within the deadline. A longer deadline can often make a customer believe he can put an invoice off. Furthermoremore, the invoice becomes less and less at the forefront of the customers mind, increasing the chance that he will miss the payment date.
9. Automatic Payments
Having automatic payments will vastly increase the speed invoices are paid. If you offer automatic payment and your customer accepts it, then the invoice is no longer reliant on the client to take time out of his day to pay the invoice. Furthermore, it will structure your cash flow as you will know exactly when you will be getting paid.
10. Clear Payment Terms
Discussing payment terms with your client will ensure that both you and your customer know exactly how the invoice will be paid. Furthermore, it will stop your customer from seeing any surprises, such as a late payment fee, when he reads your invoice.
Reducing confusion will not only stop hiccups that could lead to a later payment, but it often the speed your customer pays his invoice will increase.
Ensuring that your invoices are paid quickly and on time is crucial to SMEs. According to Bacs Payment Schemes Limited, 43% of SMEs spend £4.4bn in administration costs alone on chasing late payments. This highlights how important it is to make sure your invoices are paid on time. Using the tricks above, you should hopefully be able to increase the probability of your invoices being paid on time.
If these tricks have worked for you or if you are thinking about expanding your knowledge in other sectors of SME business, check out our other blogs. For example, have you thought about How to Reduce your Business Expenses?
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