Every business requires a healthy cash flow. However, getting paid on time is vital in maintaining a steady cash flow for small businesses. If clients pay on time, small businesses can cover their expenses, improve their financial health, and simplify their accounting process.
Getting paid on time is challenging, though. Some clients are persistently late on their payments. On the other hand, a select few, unfortunately, isn’t intent on paying invoices. Although some clients pay on time, they still need to be reminded.
Reminding clients about invoices they need to pay can be awkward and uncomfortable. This can become more difficult when you have to inform late-paying clients that you’ll be charging them for late payments or that you’ll have to delay your work until they pay.
You’ll have to improve your invoicing methods and process to get paid faster. While there are many ways to achieve this, here are three main tips that you can apply.
Refine Your Invoice Payment Terms
Payment terms can often be found at the bottom of an invoice. It includes details about payment methods you’re accepting, interest charges if there are any late payments, and the time you’re allowing your clients to prepare their payments. It helps customers get a better grasp of how you process your invoices. Also, it allows you to have better control over your cash flow.
Still, clients don’t always seem to understand what’s written in the payment terms. According to Freshbooks, using the right words is essential in delivering messages in payment terms to your clients. The accounting software solutions provider found out in its 2019 analysis of invoices processed through its invoicing service that specific keywords influence clients to pay sooner. Words such as “7 days,” “thank you,” and “interest” apparently encourages clients to pay before their due.
Freshbooks provided the following tips when writing your invoice payment terms with this information.
Keep your payment terms brief and straightforward. Clients understand it better if you keep your payment terms short and precise. It avoids miscommunication and allows your message to go straight to the point. This clearly indicates you mean business.
Avoid using jargon. Accounting and finance staff are adept in using financial terminology, but not your clients. Keep jargon in internal communication and away from your invoices.
Foster open communication with clients. This will help you learn if any of your clients are going through a hard time and may not be able to pay on time. Customize your terms in special cases such as these. Remember, be flexible and reasonable at the same time.
Include “interest” in your payment terms. According to Freshbook’s analysis, 92.15 % of paid invoices have this keyword in them.
Finally, say pleas and thank you when requesting payment. Again, Freshbook’s analysis revealed that 88% of paid invoices have “please” in them, while 89.61% have “thank you.”
Be Flexible With Payment Methods
Allowing clients to send their payments in different methods will make it easier and faster for them to pay you. Plus, this will prevent them from giving you an excuse that you don’t accept payments that, for them, is more convenient.
While most businesses accept payments in cash, credit card, or check, provide other ways such as bank transfer, mobile or online payments, and direct deposit.
Speaking of deposit, ask for it if you’re providing a service like professional house cleaning. Prices for services always vary. You may initially provide clients with a list of base prices, but you should inform them that the actual price may differ once services have been delivered. If they’re not aware, they might not pay you in full outright. If you’ve already received a deposit, you’re at least secured with a partial payment.
However, one of the best ways to get paid more quickly in cases like this is to accept automated payments. You can use invoicing software to make the process easier for your business.
Offer Incentives and Enforce Late Fees
According to a government-accredited small business mentor Score, incentives for early payments help clients develop a habit of paying invoices on time, or better, ahead of the due date. It’s a simple gesture that shows you appreciate your clients’ prompt payments.
Discounts on their next purchase or availing of services are an excellent way to offer early payment incentives. You can also offer gift cards, vouchers, or rewards.
It’s also an effective strategy to charge fees to penalize habitual late payments. Clients will always pay you beyond the due date if you’re not strict about this.
Adjust Your Strategies
Not all of these tips may work with all your clients, though. You must analyze their payment behavior before applying the right approach. Most importantly, however, you should have a solid contract and clear invoice payment terms to outline what you expect from your clients.