Making sure invoices are paid on time is key to ensuring a positive cash flow for your business. Payment delays aren’t something you can afford, and it pays to ensure that your invoicing system is as efficient as possible. These tips can help you streamline invoicing and get paid more quickly to minimize cash flow snags.
1. Review Invoicing Terms
The first place to start is checking your current invoicing terms. For example, if you’re asking customers to pay on a net 45 basis, you may consider changing that to net 30 instead to improve payment times.
Also, make sure that payment terms are clearly visible on your invoices and not buried in the fine print. And be specific as well. Your invoice may say that payments are due on a net 30 basis but don’t leave your customers to do the math themselves. Include the date when you expect to receive payment somewhere on the invoice so that it can’t escape their attention.
2. Consider Offering Incentives
Customers may be prompted to pay more quickly if they have a good reason to do so. For example, you could offer a 5% prompt-pay discount to customers who pay their invoices on time. If you want to go a step further, you could offer a 10% discount to customers who pay early. These kinds of incentives can encourage quicker payments, and your customers may appreciate the savings.
3. Impose a Penalty for Late Payments
If you’re not charging a fee for late payments, it may be time to consider it. Charging a fee for paying late can encourage customers to pay on time or early. You may impose a tiered fee structure, increasing fees the longer the invoice is outstanding.
Do the math to decide whether it makes more sense to charge a percentage of the invoice amount or a flat fee. Then make sure you’re communicating your late payment policy clearly to your customers.
4. Secure Deposits for Larger Invoices
Asking customers to make an up-front payment or deposit for larger invoices can help minimize gaps in cash flow. If the client agrees to pay half up front, then they may be more likely to pay the remainder on time once the project or order is complete. This method could be particularly helpful if you have a contracting business, where you have upfront expenses to pay before work can get underway.
5. Schedule Payment Reminders
Once you’ve sent your invoices out, the waiting game begins. You can give your customers or clients friendly reminders that the invoice due date is approaching via email reminders. Just remember to keep notes polite and friendly so your customers don’t feel badgered to pay.
6. Expand Payment Options
In an age where people can pay for almost anything from their smartphones, sticking with just 1 or 2 payment methods is outdated. If your business only allows customers to pay by cash, check, or credit card, opening up the field to include debit cards, ACH payments, or mobile app payments could be just what you need to improve invoicing and payment speed. The goal should be to make it as easy as possible for your customers to pay you.
7. Send Invoices Promptly
A simple way to cut down lag time on payments is to make sure you’re invoicing clients or customers in a timely way. Ideally, you’re sending out invoices right away since the sooner your clients receive them, the sooner they can pay. The second-best thing you can do is be consistent with invoicing by sending them out on a set day each week or month.
For example, if you’re a freelancer, you might invoice all of your clients on the last day of the month on a net 30 basis. Following this schedule consistently can help you better manage cash flow since you know exactly when invoices were sent out and when they’re expected to be paid.
8. Reward Good Payment Behavior
If a client or customer regularly pays on time, sending a nice thank you note or a small gift can help keep that trend going. It’s a good way to show your appreciation and build on your existing relationship so that they’ll continue paying on time in the future.
9. Swap Paper Invoices for Electronic Ones
If you’re still mailing out invoices to customers or clients, that’s only slowing down the invoicing process. You have to wait for your customer to receive the invoice in the mail, then maybe wait again if they’re mailing back a check or their credit card information for payment. Switching to electronic invoices gets them out the door that much faster.
10. Upgrade Your Accounting Software
Last but not least, consider changing up your existing accounting software for a bookkeeping app. There are apps that can help you do all of the things listed here in one easy-to-use, streamlined package. When invoicing is a headache, an app could be the total package solution you need.