A recent Dun & Bradstreet survey found that UK SMEs are owed an average of £63,881 in late payments. Which goes to prove one thing: cashflow is a real pain. For every business, ensuring there’s enough coming in – and coming in at the right time – is one of the biggest challenges of the job. So it’s important to be able to not only keep up a steady flow of invoices, but also to make it easy for people to pay them. Here are eight ways to do just that.
1. Invoice on time
When your head’s down and you’re engrossed in getting work done, it’s easy to miss the invoicing stage. That can be catastrophic for cashflow, because the clock will only start ticking from the date of invoice. Set yourself reminders and if your bookkeeping software includes automated invoicing, take advantage of it.
2. Invoice the right person
Irrespective of who you usually liaise with in the business, ask who’s the right person to receive the invoice. It’ll get paid faster if you send it straight to the person who holds the purse strings, rather than having someone sit on it for two weeks before referring it on.
3. Include all the relevant details
You’ll lose valuable time to-ing and fro-ing if your invoices don’t include all the information the client needs upfront. If you work with any overseas clients you may need IBAN and SWIFT codes in addition to the basic sort code, and account details you’ll put on every invoice. Make a habit of including everything on your invoice in every instance so, UK or not, there’s no danger of losing time by playing invoice ping pong.
4. Keep payment terms short
The Government gives you a right to be paid within 30 working days. Which is very nice of them, but you may need paying rather sooner than that. You can agree different payment terms with clients and these can be longer or shorter than the 30 days if both parties agree. Naturally, if you want to keep cash flowing, aim for 7 or 14 day terms.
5. Send reminders
You shouldn’t have to send reminders. In an ideal world, everyone would pay by the expected date yet sometimes things just don’t work like that. But once a client has forgotten to pay you, they won’t remember unless you remind them. And the longer it takes you to remind them, the longer they’ll take to pay.
Again, automated accounting software (of the sorts we recommend here) could remind you or issue automated reminders to clients to make life much easier.
6. Add interest
You might worry that, when you start adding late payment interest to a client’s bill, they won’t stay a client for very long. We’d argue that if they’re a client worth keeping, they’ll honour the added interest and pay on time in future.
How much interest can I add to a client’s bill?
The standard rate is the Bank of England base rate for business to business transactions (you can find the current base rate here) plus 8%. You can charge a different rate and, whatever it is, this should be included in your contract. Always send a new invoice which shows the added interest, and always alert the client in your reminder that interest will become payable if they fail to settle the invoice.
7. Add an incentive to pay quickly
Imposing a late payment fee is always something of a dilemma for business owners. So as an alternative, try a little positive reinforcement. Offering a quick payment rebate doesn’t have to affect the business, especially if you use it from the outset, because you can adjust your fees to provide the wiggle room to offer a 5% or 10% discount when the client settles fast.
8. Make paying easy
Invoices are easy things to forget. So why not find a way of enabling your clients to pay immediately? Card machines are no longer just for retailers and restaurants. Every plumber, builder and landscape gardener could carry a card reader too. It does come with a cost, but you may find it’s a cost worth paying if more of your invoices are settled instantly.
Alternatively, and for clients where there’s a regular payment involved, Direct Debit could ensure you get paid on time every month, easily. We’re all accustomed to Direct Debit which means there’s nothing new for your client to get their head round. You can still vary amounts where there’s a bit extra to pay one month, and it integrates very nicely with your accounting software so reconciling payments is done for you.
Not so long ago Direct Debits weren’t open to smaller business but that’s all changed thanks to payment collectors like GoCardless. If yours is a business that earns money from monthly maintenance fees or service contracts, take advantage of it.
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