Cash flow can be a crucial issue for small businesses: until your clients pay you, you may not be able to turn around and pay your own bills. That can make improving your cash flow a priority. But what are effective ways to go about speeding up the turnaround for your clients? After all, most clients tend to pay on a net-30 basis — no number of phone calls or nagging will change that number. But a few tweaks to your invoices can often make a difference in how soon they get paid.
1. Discuss invoices in advance.
The more that your clients know exactly what to expect when they receive your invoice, the faster you're likely to get payment. With some companies, your invoices aren't even looked at until they're due — which means that any problems that come up will be handled after your invoice has already sat on your client's desk for a month. Even a chat with your client before you send out your invoice can help eliminate that wait.
The key points to focus on in such a discussion are the items that will be on your invoice — not only the total amount of the invoice, but a break-down of the individual items. Even if your invoice is virtually identical to your estimate, your client may not remember each piece of the whole cost. It's also worth checking if your client's accounts payable department requires any special information on the invoice. For instance, some big corporations require all vendors to use an invoice format they provide and if your invoice isn't in that format you won't get paid. That's an extreme example, of course, but making sure that you have details like the purchase order number already taken care of can speed up payment.
2. Add payment options.
If you send out your invoices electronically, the addition of a "Pay this invoice now" button can speed up payment, especially with clients who are more flexible on payment terms. There are a number of online payment processors (the best known is PayPal), that will help you set up a payment button in a matter of minutes.
Even if you use paper invoices, it's worthwhile to accept payment online. The difference in the time it takes to receive a check in the mail, take it to the bank and get it processed can be lengthy compared to an online payment option that deposits money directly into your business bank account. It depends on your clientele whether you can easily convince them to pay invoices online, but it can be a worthwhile change for them as well, if only because it gets an invoice handled immediately and allows them to use credit cards even if you don't accept them otherwise.
3. Offer discounts for fast payments.
While some businesses are uncomfortable with the idea of offering discounts for clients who pay invoices immediately on receipt, others find it a perfect fit. It's a choice you'll have to make for your business. One of the biggest concerns is that you may not earn enough on products or services to be able to offer such a discount — if that is the biggest concern, it may be worth increasing prices to create margin for a discount.
Most early payment discounts offer around a three-day window for clients to pay their invoices and receive a certain amount, usually below five percent of the total invoice off. Not all clients will take advantage of such a discount — if their cash flow is a little slow, it may not even be an option — but for others, the idea of getting even a slightly lower price can make it worth their while to make payments quickly.
4. Add a fee for late payments.
Late payments can be a major problem for a small business' cash flow. A fee can discourage your clients from waiting too long to process payments. Unfortunately, it will not speed up all slow clients — you'll find that some simply consider a late fee or a penalty the cost of doing business on their own terms — but it can also make it easier to cover the problems that a late payment will cause you.
There's no right amount for a late fee: different clients have different ideas of what would be considered an expensive delay. For an individual client, something as small as a $50 penalty will catch enough attention to get the invoice paid. For a big company, anything under half the total of the invoice won't even make a dent. It's important to set a fee that you'll be comfortable with using consistently on each client, however, changing fees may catch a client's attention, but not necessarily in the way you want.
5. Schedule a follow up to your invoice.
As a part of your invoicing process, make a note of the due date of each invoice — send a quick email or make a call on that date to make sure that it's being handled correctly. However, this isn't a reminder call, at least overtly. Since many accounts payable departments only start processing invoices after thirty days, touching base on that date allows you to ask if there are any issues now that they've looked at the invoice, which means you'll be able to respond that much faster.
While many clients won't move any faster if they think that a phone call is meant to be nagging, they will take steps to speed up your invoice if they can see that your call is meant to make their lives easier. Keep your phone calls calm and helpful and you may be surprised by your clients' reactions. After all, they aren't delaying payment to make your life harder — often it's a question of cash flow for them, too.