Irrespective of how big or small your business is, an unpaid invoice can be a big inconvenience. Small scale businesses generally do not have much cash flow and require timely payments to ensure they can continue to keep their businesses operational.
According to research conducted recently, most small scale industries have a funding capacity of 27 days while the terms of payment usually include an average of 30 day time for payments.
From invoice finance to online payments, there are a number of different ways you can ensure you get your payments on time and this article discusses some of the strategies you can employ to keep your finances in check.
Do your homework
Try your best to know the history of a client or other businesses. Talk to other companies who deal with the same person and if you hear something that unnerves you, avoid working with them. It is very difficult to predict if someone will pay you on time or not, without knowing them or their reputation.
There are occasions when a person who has always paid on time in the past cannot pay this time as they are facing particular issues of their own, but all in all, there is no harm in doing some background checks as it will give you a good idea of who to put your faith in, and who to avoid.
Be clear and simple in your invoice
Your invoice should be as simple as possible with all the details needed for the client to make the payment. If something is vague or confusing, customers may use it as an excuse not to pay or take advantage of how long they have to pay. Clearly state the required amount they have to pay, how they have to pay it and when they have to pay it.
Make your own terms, see what suits you best and then proceed with the invoice. Always get the invoice signed by the customer so that you have a proof in hand; word to word commitments have no legal value.
Check if you followed the correct procedure
It can be humiliating if you contact the client to find out why a payment hasn’t been made only to discover that the mistake was at your end. Therefore, the first thing to check is that you have followed all your own procedures.
Confirm if the invoice was actually sent to the payer, the terms of payment were made clear to the customer, that it sent to the right person and if the personal details mentioned in the invoice are correct.
Also, try to give consideration to factors such as the client being out of town.
Set up an easy payment method
There are three different ways for the payments to be made. Cheques usually take around a week to be delivered and the payment can take even longer to clear. Direct deposit to your bank account is the most common way for payments to be made.
Promote online banking payment and make use of modern online services such as PayPal and Square invoices. It can help massively as people just have to click a few buttons and send the money directly to you.
Send a formal email
Once you have checked all the factors on your side, then proceed with writing a formal email. Greet the customer kindly, mention the details of the business done, share the invoice number and ask them when you can expect the payment.
The chances are, if there are genuine issues and the client intends to pay, they will respond to you with their reasons and expected time of payment.
Call the client
If after sending the email you haven’t heard from the client within an expected timeframe then it’s time to call them. Make sure your intention is positive, that the client wants to pay or is already in the process of doing so.
A phone call can clear up a situation right there and then. Ask the client if they have made the payment and if not, what their reasons are for not paying yet. Even if they aren’t able to attend the call, you can leave them a message in a voicemail. In most cases, the client pays right away after the call.
Give incentives for early payment
An important technique to entice the customer into paying on time is to give them some type of discount on full payments. It is very common to offer a few percent discount if they are willing to pay before time.
Similarly, introducing some kind of surcharge on late payment also forces them to pay on time. No one wants to spend more money than they already have to.
Use Invoice Finance
If not being paid on time is becoming a serious issue then you should always consider invoice finance. It works in a simple way; the creditors will give you a large proportion of the money you owe according to the invoice and keep the remaining percentage with them until the invoice is cleared.
As soon as you get the paid by the clients, you then give a specific amount of money to the invoice finance providers and receive the remaining per cent of the total invoice.
Seek legal action
There are various legal options a small business can take if they want to recover outstanding payments. Usually, the type of legal action one can take depends on the type of dealing and the organisation you are working with.
Common practice is to send the client a letter of demand which is an official warning before you take the legal route. A statutory demand is the next step, which is a formal request to complete the payment of debts they owe and the last resort is always the court case.
All in all, running after clients to get the money you deserve can be a stressful process. The best way is to ensure you have a proper strategy in place so you deal with the issues beforehand, as explained in this article.
But if you are finding it difficult to manage everything on your own, then seeking professional help and using invoice financing options can be an excellent alternative for your business.