Keeping track of cash flow is critical for your business, and we have found the 12 best tips to ensure your customers pay you on time.
On paper your business is thriving. Sales are up and you really haven’t increased your expenses. But, you’re still having cash flow problems. This is a serious concern for businesses in all industries, of all sizes.
While there could be a number of reasons why you’re dealing with cash flow problems, one of the obvious places to start is by opening your books and seeing what’s going on with your invoices. This means looking into which invoices have been issued, paid and received. By tracking your money movement, you should have a better understanding on what’s going on with your cash flow.
Of course, there’s another important part of bookkeeping. Making sure that clients pay their invoices on time—which will increase cash flow. Over the years, I've learned the hard way how to help payments get in on time, without having to turn to financing or factoring.
And, through blood, sweat and tears; here are the twelve ways that you can accomplish this goal.
Related Article: How to Collect Overdue Bills From Good Customers
1. Make Invoicing a Priority
No matter the size of your business, cash flow is arguably the most important determination in whether or not your business succeeds or fails. While this may sound obvious, the sooner you send out invoices to clients, the sooner you’ll get paid—which means that the cash will keep pumping in.
Whenever you’ve completed a project, you want to send out an invoice so that you won’t forget about it later. After all, you’re extremely busy and it’s easy to let an invoice get overlooked.
However, prioritizing invoicing doesn’t just mean sending out bills in a timely manner. It also means following up on any invoices that are overdue. Again, if you aren’t bringing in any money, how can you pay your bills? Software has now made this task much easier. Here is the best invoicing guide on how to bill, follow up and get paid. It walks you through all the necessary steps to get paid.
2. Don’t Leave Out Specific Details
You should ask each and every client what they require on their invoices since they all have different payment policies. It may sound like a waste of time upfront, but if you address this area prior to sending out an invoice you’re reducing the chance of an invoice being returned or not paid because you left out a piece of information.
Here are some suggested questions to help you get started on your invoice:
- Does your client require a purchase order number or will an invoice number be enough?
- Are you required to have an Employer Identification Number?
- How detailed does the invoice have to be?
- Who should I send the invoice to?
3. Send to the Right Contact
Just because you’ve dealt with one individual throughout a project or sale doesn't mean they are in charge of the payment. Perhaps they have a business partner or accountant who handles all of the incoming invoices. Additionally, that person may even have a different email address for their accounting needs. For example, you may communicate with them via their Gmail account during a project, but they use another email address for PayPal.
When preparing an invoice, be 100 percent sure that you are sending it to the proper contact. If not, it will delay your payment.
4. Say ‘Please’ and ‘Thank You’
Most of us probably remember our elders reminding us to use words like ‘please’ and ‘thank you.’ Why? Because it shows that we’re grateful and appreciative. Believe it not, this courtesy even translates to invoicing.
According to a finding from FreshBooks, invoices that contained phrases like “please pay your invoice within” or “thank you for your business” resulted in an increase of “the percentage of invoices that are paid by more than 5 percent.”
5. Set Up Recurring Billing
This is a perfect option if you have a client who is being invoiced every month. Just add the client’s billing information, the amount of the invoice and the method of payment into your billing software. Since the money is automated, you don’t have to create the invoice and wait for the client to pay and approve the invoice, because the money will automatically be withdrawn.
Related Article: 11 Entrepreneurs Share Their Best Billing Automation Tips
6. Accept Electronic Payments
Make it as easy as possible for your clients to pay their invoices by accepting various payment methods. This includes accepting electronic checks, credit cards or using payment gateways like PayPal.
In fact, when you use online invoicing, you can select and store your preferred payment options so that you don’t have to constantly fill-out that information. More importantly, clients can pay your invoice with just a few clicks.
7. Offer Clients Incentives and Late Payment Fees
Give your clients the motivation to pay the invoice by offering them a little incentive. Even if it’s a small discount, five percent off their bill if they pay before the end of a 30-day pay cycle, should be incentive for them to pay the invoice either early or on-time.
Additionally, you also need to let clients know what will happen if they are late paying their invoice. This could be a $5 a week fee until the bill is paid, or use a percentage. Remember, a late fee isn’t supposed to be used for your own financial gain. It’s intended to encourage clients to pay on-time. While a late fee is needed, you don’t want to use an outrageous figure.
8. Have a Collections Policy
What if late fees and frequent reminders aren’t enough to get your clients to pay their invoice? You may have to ask your attorney to send them a letter or even seek the assistance of a debt collections agency. But, be cautious with these tactics because you don't want to damage the relationship of a favorable client who is just absent minded.
Whatever route you decide to go in, you should establish a fair collections policy in advance so that you know how to resolve a negative situation if it ever occurs. Most businesses are very cooperative with paying their bills if there is open communication.
9. Deliver Goods or Services on Time
What happens if you can’t fulfill a purchase order? If you’re a freelancer, what if you can't complete a task because you’ve been busy with other work? In either case, you can’t send out an invoice because you didn’t complete your end of the deal.
Make sure that you have enough inventory in stock (especially your most popular products) or are able to take on new tasks. You’ll keep your customers happy and will be able to send out invoices more quickly if you’re ready to send out products or work on a project and deliver either on time.
10. Days vs. Net
For those involved in the business world, terms like net 30 or net 60 are easily understood. But, for those who do not live in that world, those terms don’t really mean a whole lot. By using a phrase like “payment due within 30 days” you’re increasing the chances of getting paid on time because most people can understand that time frame.
11. Keep Track of Invoices
You absolutely need some sort of system to keep track of your invoices and customers. But, you don’t even have to make it that complicated. A simple numerical system, such as 00001, 00002, etc., for your invoices will work just fine. You’ll use this system to keep track your invoices and easily locate them if you are ever audited.
If you use a reliable online service, you can easily view all of the payments you receive from various clients in one dashboard.
12. Ask for An Upfront Payment and then Smaller Payments
If you’re working on a large project, or just received a hefty order from a customer, you may want to consider offering smaller payments (or an upfront deposit) instead of just one lump sum. This not only keeps the cash flowing through the completion of a project or time frame, clients will more likely be able to make those smaller payments, little by little, on time. However, if you are working on something that large, you may want to consider asking for a retainer or deposit so that you can cover expenses.