7 Tips to Help You Get Paid Faster and Improve your Cash Flow
You or your employees have delivered a product or service, sent an invoice and watched the bank account for the money to come in. However several weeks later, you still haven't been paid- on the assumption that your client is satisfied with your services, here are a few tips to speed up that cash flow process!
No matter what type of business you operate or industry you work in, you’re bound to experience late payments at some point. In fact, a survey conducted by PaySimple a few years ago reported that 80% of small businesses see their due dates come and go without payment. In addition a National Federation of Independent Business survey said that 64% of small businesses didn't see their payments for 60 days after the due date.
Usually it's good idea to keep level headed and proceed under the assumption that most of your clients are well meaning and are simply subject to the same human restrictions we all have to deal with. That said, poor financial health and a stagnant cash flow cannot be allowed to fester, and the swifter your action the better.
Here are a few tips to help motivate your clients to pay on time:
- Choose the right payment terms. A Xero study found that, on average, customers pay two weeks late. So, Envato Tuts+ suggests that no matter which payment terms you choose, you should add two weeks to estimate the actual date when you’ll receive payment. For example: If you want to get paid in 30 days, consider using payment terms of 13 days or less.
- Choose your words carefully. According to a Freshbooks study, using phrasing like “payment due within 20 days” rather than “net 20” makes it easier for customers to identify the timeframe in which payment is due. And although “due upon receipt” may sound urgent, it gives your customers too much wiggle room.
- Send a gentle reminder when an invoice is a week past due. In many cases, invoices simply get lost in the shuffle. By politely following up with clients after invoices are a week past due, you can put them back on your customers’ radar.
- Institute a late payment fee. Unfortunately, not all customers will be motivated at the prospect of saving money. They might pay up on time, however, if paying late comes at a cost. Even an amount as small as 1.5% might grab their attention and get that check in the mail.
- Do not do more work for the client if their account is 30 days past due. Tough. Love. Sometimes temporarily ceasing to provide services or products is the only way to get a client to understand paying you isn’t optional.
- Offer a small discount for paying early. A little positive reinforcement might help you get paid on time. Consider offering clients a discount of 1 or 2% if you receive their payment a certain number of days before the invoice due date.
- Give the option to pay electronically online. By enabling clients to pay instantly through an online payment service like PayPal, you make it more convenient to pay. And it allows customers who are short on funds to pay using their credit cards. That way, you’re not stuck waiting until they have money in the bank.
Clear communication with clients is the best grease for the cash flow machine, the second best is polite and respectful relationships. Combined, you will be able to encourage swift payment of invoices and maintain effective financial partnerships with the majority of your clients. There will always remain a tricky handful, in the words of Sinatra: "that's life!"