For most small businesses, few things are more important than getting paid on time, as payment delays can seriously disrupt cash flow. When searching for ways to speed payment, keep in mind that the most effective solutions are often the most simple. The invoice you send your customer is, hands down, the most important communication in regards to getting paid. With a few simple adjustments and additions to your invoices, you can actually speed payment from customers and increase your chances of getting paid.
1. Please and thank you. Good etiquette is always important, but when it comes to invoicing, minding your manners can actually increase the probability of getting paid. The online invoicing company Freshbooks has discovered that by adding a “please” or “thank you” to an invoice, you can improve that invoice’s likelihood of getting paid by more than 5 percent. That simple adjustment could end up resulting in thousands of dollars per year.
2. Customized details. Make it a habit to ask all of your customers what they require on invoices. It will take some time upfront to make these inquiries, but you will save time and money down the road if you don’t have to re-invoice a customer due to missing or incorrect information. Here’s a great list of invoicing questions to get you started:
Do you need a purchase order (P.O.) number or is an invoice number enough?
Do you need an Employer Identification Number (EIN)?
Do you need a detailed breakdown of services or will a general description suffice?
Is there any individual I must direct the invoice to?
3. Days vs. Net. By simply using the term days over the term net, will help you to get paid on time.
According to Freshbooks, terms like net 30, net 60, etc. make a lot of sense on the business end, but customers don’t always know what they mean. When you include phrasing like “payment due within 30 days,” the customer immediately identifies the time frame. This is stronger than, say, due upon receipt, which gives the customer room to waffle about when the invoice was received and doesn’t offer a strict timeline.
4. Interest fee. If you aren’t already charging interest on late payments, you absolutely must begin.
Late fees add urgency to invoices, ensuring they don’t end up at the bottom of the bills-to-pay pile. Be sure to reference late fees in the initial customer contract and make certain to restate them in the invoice. Let your clients know exactly what the fee percentage is and when it applies (i.e., a 2 percent interest fee will be charged per month on late payments.) This lets the customer see what additional payments they would have to make if they don’t get that invoice in on time.
5. Incentives. Beyond motivating payment with late fees, try positively incentivizing customers to pay you early.
Incentives might include a 1 to 2 percent discount if payment is received within a specific “early” time frame. Include these incentives in the invoice so the customer is immediately motivated to react to the offer. Also, consider offering future discounts, credits, gift certificates or merchandise as possible incentives. In the end, you’re saying thank you for making that payment a priority. It’s rewarding your customers for their business, increasing their loyalty, and helping you get paid.
6. Include electronic payment options. You will see a much quicker response when you give customers the opportunity to pay electronically.
For example, within Intuit’s online platform businesses typically received payment within 10 days of sending the invoice, while all other methods usually take an average of 27 days. If customers are able to instantly access a payment link on an invoice, they can instantly make a payment. Take a look at Intuit's PaymentNetwork or Freshbooks to make this payment option available to your customers. Not only can this help you get paid, but electronic payments can save you 30 to 40 percent more than using paper checks. They also help eliminate fraud, as over 40 percent of small businesses experience fraud when using paper-based checks.
Meredith Wood is the Community Manager at Funding Gates, the world's first CRM platform for receivables management. Funding Gates provides analytics, real-time recommendations and tools to get small businesses paid faster and more effectively. Looking to discuss small business finance? Connect with Meredith on Twitter @FundingGates.
Read more on effective invoicing.