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Ask any small business owner and most will tell you that managing their cash flow and getting paid on
time is their biggest challenge. Late payments can have dire consequences for a small business and hold back its productivity. 

According to Xero, an invoice processed via the Xero platform in August 2018 was eight days late on average. The annual average is 9.4 days late whereas seven-day payment terms are paid 10 days late on average. These are serious delays that can cripple a small business.

 

Needless to say, improving payment practices can have a big impact on the success of small business. As a small business, you may have limited control over getting paid on time but there are ways to avoid late payments and increase your cash flow.

1.    Use online invoicing and reminders

You need to stay on top of your accounts receivable and an online accounting solution allows you to do just that. You can send out invoices on time and use invoice reminders to chase overdue payments for you as you carry on with business. According to Xero, overdue invoices that were followed up with reminders get paid an average of four days sooner than those that were not.

2.  Review and adjust payment terms and pricing

Check how much time you give your customers to pay you and if you can still shorten it. Most invoices ask for payment within two weeks but you can offer early payment discounts to encourage faster payment. 2% is the standard discount for 30-day payment terms. Remember to communicate any changes to your customers. If you need to review your pricing and payments, we can give you a hand.

3.    Provide a cost estimate upfront

If you can, it would be good to provide your customers with a cost estimate early on, so you can set expectations and reduce the chance of any cost-related dispute. Your final price must be within 10-15% of the estimate, so you must be careful when calculating and not to set it too low just to win a business. When giving estimates, you need to include the work you will carry out, the costs, your hourly rate and the timeline.

4.  Offer your customers more payment methods

Make it easy for your customers to pay you, so they can use their preferred, most convenient payment method and do it faster. Online invoices can have a “pay now” button, so customers can use a credit card to pay. Some popular payment methods include Stripe, PayPal or GoCardless, which you can offer in conjunction with Xero. According to Xero, invoices with these alternative payment methods are paid 10 days faster than other invoices.

5.    Look into short term lending

Capital and debt are key to growth but can be a challenge. For a small business, filling out lending forms can consume too much time and the process can take about six weeks. It can also be expensive for banks to loan to small businesses and these loans are treated in the same way as to larger businesses. You can look into alternative lenders to improve your cash flow. They have an open bank model that is quicker and more effective. Sharing financial data from Xero can also speed up the
process.

6.   Invoice as soon as possible

Send your invoice as soon as your obligations have been fulfilled. For those who sell, this is once the product has been delivered to the customer. For those who provide services, once the work has been completed. The sooner you send your invoice, the sooner you will be paid. You can also split the invoice into multiple payments if you’re carrying work over a longer period so the money comes in and you offset some risks to your business.

7.   Look at your customer insights and data

Before taking on work, make sure you can trust your customers. Look at their credit report and non-payment history. Know who you’re dealing with so you can be more confident, you can set the terms and receive payment when requested.

8.   Get in touch

Don’t wait too long before reminding your client that they owe you. Just send a friendly reminder as the due date comes closer and follow up if it goes past due. An automatic software can send automatic reminders. If you get no response, you can make a call.

9.   Talk to your accountant

Accountants are becoming trusted business advisors and it’s good for small businesses to engage with an accountant to discuss the best ways to manage their cash flow and make sure their business can thrive.

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Our Business Clients

Cam recently caught up with Grant Douglas, owner of Makers Fabrication, to get his perspective on a few things. If you want to chew the fat with Grant further – get in touch and we’ll set it up.