Ask any small business owner and most will tell you that managing their cash flow and getting paid on time is their biggest headache. It may be hard to believe, but many will say they get paid eight days late on average! However, these serious delays can cripple a small business and late payments can have dire consequences and hold back business productivity.
Needless to say, improving payment practices can have a big impact on the success of small businesses. You have limited control over getting paid on time as a business owner, but we’ve jotted down some things you can do to avoid late payments and improve your cash flow.
- Use accounting software for invoicing and reminders
The key to getting paid fast is by staying on top of your accounts receivable, and although having an old-school written record can be handy, accounting software takes the time and stress out of manually chasing customers and following up on payments. You can send out invoices on time and use invoice reminders to chase overdue payments in the background as you carry on with your business. Fun fact – overdue invoices that were followed up with reminders get paid an average of four days sooner than those that were not. If you’re a Xero member, invoicing is a great function included in your Starter, Standard and Premium plans.
- Check your pricing and payment terms
Check how much time you give your customers to pay you and see if you can still shorten it. Most invoices require payment within two weeks, but you can offer early payment discounts to encourage faster payment. If you make any changes to your terms, don’t forget to communicate these to your customers. Note that 2% is the standard discount for 30-day payment terms. If you need to review your pricing and payments, give us a buzz, so we can give you a hand.
- Upfront and accurate cost estimate
If you can, it would be good to provide your customers with a cost estimate early on, so you can set expectations and avoid cost-related disputes. Your final price must be within 10-15% of the estimate, so be careful when calculating and never set the estimate price 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 project timeline.
- Different 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 feature a “pay now” button, so customers can use a credit card to pay. Other popular payment methods include Stripe, PayPal or GoCardless, which you can offer in conjunction with Xero. Invoices with alternative payment methods are paid faster than others.
- Prompt invoicing
Send your invoice as soon as your obligations have been fulfilled – once the product has been delivered or services 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 keeps coming in and you can offset some risks to your business.
- Review customer data and insights
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, and you can set the terms and receive payment when requested.
- Communicate with your clients
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 and if you still get no response, you can just make a friendly call.
- Consult an accounting firm
Accountants are 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.
If you need help with a stubborn client or just want to automate your invoicing process, give us a shout out and we’ll get in touch with you! Let’s get your cash flow going.
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Your Outside Team
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Te Aro, Wellington 6011, New Zealand
Mail: PO Box 24-457, Wellington 6142
Phone: 04 889 2975