Top 9 ways to get invoices paid

Top 9 ways to get invoices paid

How to get customers to pay your invoices on time, every time.

Late payments or non-payments can be life and death to a small business. Of course, the occasional late payment hopefully, shouldn’t pose a huge threat to a financially healthy SME. That said, unless you are significantly funded or have very, very deep pockets your financial forecasts, business plans and growth are closely tied to a consistent and positive cashflow.

Unless your business is all payment upfront set up a process for how to allow credit and collect payments before your first client.

Establish credit guidelines that align with your business plan and cashflow projections. As you win new clients check their credit worthiness. I know it sounds scary and a big thing, but believe me a few simple checks can leave you safe in the knowledge that your client has the capacity to pay and potentially save your dream.

Put your payment terms in writing to them so they know what is expected in return for the price you’ve given them. This will enable you to more accurately forecast when that money is likely to be received. Managing debtors and following up to demand invoice payments can be time consuming so getting it right will save one of your most precious start up resources – time!

Ongoing late payments or an unusually large invoice, paid late, can be serious to the healthiest of companies particularly during stages of growth. Business relationships can also be ruined, and customers are less likely to order from you if they have an overdue account. Getting them to pay early can also add sales to your books as there’s no reason not to give you that extra project, buy that additional service or order an additional load.

One the flip side lack of payment of your invoice on time directly impacts on your cashflow and can potentially have a knock-on effect damaging your own supplier relationships. You risk losing vital credit or having your credit terms reduced. Asking for extended credit can lose you payment discounts.  All of which can result in trouble for your fledgling business.

Beware of gradual sliding changes. Late payments of invoices can gradually edge beyond infrequent to regular and kind of just become accepted. Invoice payment terms of 30 days slide to 45 then 60 but they’re good they always pay eventually. Individual orders grow bit by bit and exceed the credit limit but as the Sales Director says – that’s a good thing, right? Then your sales team push through a larger than usual order value you raise the invoice but then that also isn’t paid on time and suddenly your exposure is significant. Then customers start to negotiate partial payments and your very survival is threatened; before you even saw it coming.

How can you be sure to only give credit to customers or clients that will pay you and in a timely manner?

  1. Not all business is good business.

Selling to someone who does not have the means to pay you is simply bad business. You wouldn’t lend a huge chunk of your own money to a friend of a friend who ‘s known for not paying their debts just cos they made some vague promise to pay you later in the year, so don’t do it with your business. Check out anyone and everyone you are giving credit to. Do a formal credit check. Yes, you. And you. Everyone this is how you protect yourself from the unscrupulous and those whose business simply doesn’t have the money. Look after yourself. It’s understandable you don’t like to ask too much especially about money. None of us do. The more uncomfortable a client makes you feel about asking basic credit questions the bigger the red flag and the more wary you should be. If they are financially secure, they won’t mind you knowing that. Take out references with banks and their other suppliers. Do it every time.

Establish now the maximum amount of any one order and the total credit amount you are prepared to give them (remember this is effectively money you are lending them for FREE) before shutting off further supply. Update and review as part of the account review process. If their orders are growing re-evaluate. If they’ve got a new owner re-evaluate. Keep it real and instigate a process to prevent this from ever being over-ridden without your knowledge.  Don’t skip this stage in your haste to win shiny new business and don’t allow your sales team or anyone else do so either. Don’t ever be tempted to take the business and pray.

No credit check, no credit. Exceed your credit, no more orders. No exceptions.

  1. Make your payment terms clear to your client.

Part of the contract negotiation will cover terms and conditions delivery times, prices and payment times.  Then ensure that it is agreed in writing by an officer of their company i.e. someone who has the right to agree your terms on behalf of your customer. Ideally put this agreement in a contract.

Be clear what your terms are. Communicate them and lock them in.

Don’t agree to long payment terms.

  1. Don’t agree to long payment terms.

The payment terms you set should be as short as possible.  Customers may well say they “can’t agree to less than xy days” and at this point be realistic. What terms do you have from your suppliers? What does your cashflow require? What happens if they’re a bit late paying from time to time? However juicy the deal sounds, if you can’t cover the time it will take them to pay – you will be in trouble very fast.  If you need them to pay in 45 days, you should probably set the payment terms to be no more than 30 days.

Keep Payment Terms Short. Consider when you need to pay.

  1. Find out how their payment system works.

Make sure you understand and have documented the customers’ requirements to raise payment. Which day of the month does the payment authority need to receive the invoice by to get it verified, approved and agreed for payment in order to meet each months’ payment schedule? Don’t trust their buyer or the even the company owner chances are they don’t know the details of the purchasing/payment process. Virtually walk your invoice through the system.  Who is it sent to for authorisation? Do you have all their contact details so they can receive your invoice at the same time as the person who actually pays you? Who else needs to verify receipt and what paperwork, signatures or purchase codes do they need? Does your system match their system? How might you need to adapt? Yes, you! Because, in case you haven’t noticed right now, unless they paid up front, they’re the ones with your goods or recipients of your service and they still have your money.

Know how it works. Send the right information, to the right people, at the right time.

  1. Issue invoices as soon as possible.

Maintaining a positive cashflow situation isn’t just about payment terms, it’s also about getting the invoice raised and sent. Invoicing should always be a priority but it’s amazing how often it’s not. Send your invoices out as soon as possible and if some of your start up team are bad at doing this; take it off them. Now! The last thing you want are payment delays that could easily be avoided if you had just sent the invoice.

No invoice. No payment. Late invoice. Late payment.

  1. Make sure your invoice is accurate, complies and is easy to understand.

Newsflash! Queries delay payment. If your invoice has an error, there’s a good chance first thing you’ll know about it is when you call to see why it’s not been paid. Your contact calls their accounts department, who in turn ask the user, who tells accounts they can’t sign it off because there’s a problem, accounts then explains to your contact why they can’t pay it and you get the chance to fix it – for next months’ payment schedule. The best way to avoid such delays is to make sure your invoice is accurate. If they need a purchase order number make sure you get it and include it on the invoice. If they need signed receipts make sure you get them at point of delivery, and they are included with your invoice. Give them your bank details. Phone number.  Don’t make them have to work to pay your invoice. If they need their product number on the invoice, find a way to make it happen. Whatever it takes and make it simple. If your kids don’t get it, the client won’t. If they have queries you don’t get paid.  Accurate, easy to understand invoices get paid first.

Don’t give them a reason not to pay.

  1. Get paid on time

Even before the due date give their accounts team a quick call to check they have everything they need and agree the payment date. Don’t feel comfortable with that? Think about it from the other side. Accounts payable are super busy and a quick call from a friendly and soon to be familiar voice that checks in, answers any queries and deals with any invoicing issues for them is a Win-Win. You call early in the process not at month or period end when they are slammed and you’re one less to deal with later. You may pass go and land straight at the top of the payment pile. If there’s a problem, you know about it early and can either resolve so you get paid on time or adjust your cashflow to accurately reflect your status.

Follow up before invoices are overdue. Get to the front of the queue.

  1. And if they don’t pay?

Of course, not everyone pays on time. Good customers do go bad. If an invoice does become overdue follow up fast. Immediately make calls. Send written reminders. The squeaky wheel gets the oil. Use your process and escalate accordingly. The guidelines you wrote when you opened the account were specifically written for this exactly this moment with this client. It specifically addresses this situation. It was written to reflect considerations such as the size of their orders, the number of days credit they’ve already had from you. The results of their credit check, their financial rating and payment history with others. It will also have considered the extent of your exposure to suppliers.

If your guidelines say call every 2nd day for the first 6 days. Call every 2nd day. If the guideline says Sales Manager to contact their CEO on day 7. Your Sales Manager had better speak to the CEO on day 7. If the guideline says when this client is 15 days or 8 or 2 days or 0 days past their payment terms cut supply. Cut supply. If your credit checks are accurate that’s the maximum financial risk that you are prepared to take on them. A cool calm financial risk decision made when judgement wasn’t being influenced by greed, friendship or internal pressure.

Trust your process. Don’t make exceptions in the heat of the moment.

  1. Incentives to pay

You can also consider offering incentives to pay early including discounts. These cannot just be pulled out of the air. There needs to be a calculated cost benefit, so you know exactly how much discount you can give and at what point in the payment cycle in order to gain maximum client leverage to pay whilst still benefitting you.

Alternatively, you might consider adding overdue fees to your invoices. These are intended to discourage clients from paying late but can be dangerous as they effectively establish the amount you are prepared to accept to overturn your own risk assessment and lend them additional money.  Not only is this greater risk to you but are proven to be less effective than the incentives to pay early.

Incentives to pay early are more attractive than penalties for paying late.



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