If you want to get paid on time as a small business accurate invoicing is an important element, but other factors also play a part. Presenting invoices that are easy to read and understand, clearly laying out your terms of trade, also limits the opportunity for customers to delay payment via contrived disputes.
So what aspects of invoicing do you need to focus on to get paid on time?
Due date for payment
To some extent, the industry you operate in dictates when you’ll get paid. Construction, for example, is renowned for its lengthy payment cycles largely due to the number of businesses in the supply chains, and the ‘retention money’ system that’s used.
Some businesses offer discounts for early payment, which could be worth considering, or you might offer different payment terms to different customers depending on their payment history or value of invoice. It’s also helpful to know and fit in with your customer’s own payment schedule, especially if they only process one payment run on a particular date each month.
It may be a little unrealistic to expect payment within seven days if 30-day or 60-day terms are common in your industry, but the Federation of Small Businesses (FSB) has been campaigning to change the prevailing culture of late payment for some time, so hopefully things will change.
Acceptable payment methods
Make payment as easy as possible by providing all the details your customers need on their invoices. This includes your:
- Business name
- Sort code
- Account number
- Payee name
- Postal address
- Payment reference
- IBAN or SWIFT numbers if you take international payments
Electronic payments are more-or-less instant these days thanks to the Faster Payments system now offered by many banks, but there are also various digital wallet systems available for small businesses, such as PayPal and Google Pay.
With the development in payment systems you no longer have to accept that “the cheque’s in the post,” and can set up an invoicing system that offers you a better chance of being paid on time.
Interest on overdue amounts
Chasing overdue payments consistently and relentlessly shows that late or non-payment isn’t acceptable and that your business is serious about collecting its debts, so to reinforce this message you can also state on your invoices that you charge interest on overdue amounts.
Currently, the rate of statutory interest you can charge on late business-to-business (B2B) payments is 8% plus the Bank of England base rate – this applies as long as you haven’t stated a different interest rate in your contract.
You then need to follow through by charging statutory interest, which can help you recover some of your credit control costs, but also sends a warning that you won’t tolerate deliberate non-payment.
If you’re dealing with a new client and don’t want to appear too heavy handed, you could always refund the interest as a show of goodwill once the debt has been paid – it demonstrates you’re fair-minded, and also that you don’t want to lose them as a customer.
Prompt invoicing to get paid on time
If you invoice on the same day each month you could be losing out on valuable cash in your bank account. It’s much more efficient to invoice as soon as you’ve finished a job, as payment will be at the forefront of your customer’s mind and they might pay you straight away.
Electronic invoicing is a good way to speed up the process so nobody can claim an invoice has got lost. Accounting software typically lets you send invoices directly, otherwise emailing is a good alternative, and you can request ‘read receipts’ as confirmation they’ve received it.
Invoice the right person
Making sure the invoice reaches the right person is crucial for being paid quickly, as invoices can easily get lost within an accounts office, lie unnoticed at the bottom of someone’s work pile, or be overlooked within an inbox.
If you don’t know who you should be invoicing, phone the customer to find out because it can save you huge amounts of time in the long-run, and helps you get to know your debtors better.
Keeping in touch
Regular contact with customers or clients offers additional benefits beyond being paid on time. Importantly, it can provide an early warning that they’re experiencing problems, such as the person you normally deal with leaving the company.
It also helps you build a good working relationship with the people and businesses you trade with, and by doing so encourages timely payments. Then in turn, your own business flourishes by having access to the cash you’ve worked hard for.
Some trading relationships are strained because of consistent late payment, which isn’t surprising, so reviewing the credit limits you offer customers or checking your own credit control procedures is always a good idea.
It doesn’t take much for small businesses to decline when there’s no cash available to pay their own bills, and cash flow suffers dramatically when customers pay late. Good invoicing helps you prevent this, and with so many effective accounting programmes available it’s not difficult to find suitable software that can automate what is generally an onerous process.