Online Tools and Offline Strategies for Getting Paid Faster
If you run a small business, you likely know the typical payment story all too well. Once your services are rendered and the invoice has been sent, more than a month goes by before you get the money due—and sometimes only after several follow-up emails and phone calls. It's a frustrating scenario for small-business owners who already have too much on their plates.
Statistics tell us more about the big picture when it comes to these kinds of payment delays. In the U.S., the average turnaround time for invoices hovers at around 41 days, according to a recent report by Atradius. And while the reasons for that are numerous, two stand out: Respondents cited cash availability problems on the payer's side (54 percent) and complex payment procedures (nearly 40 percent) as the two top causes for payment slowdowns.
According to new survey data from Xero, however, some small businesses report getting paid faster using online payment options that are often supported by cloud-based platforms. Based on Xero's report, which reviewed more than 250,000 of their clients' invoices, recent year-over-year data shows payment turnaround time on the decrease for small businesses using the Web to get paid:
- October 2011: 46 days
- October 2012: 40 days
- October 2013: 29 days
Granted, some of that uptick can be attributed to the recovering economy—renewed liquidity on the buyer's side may mean invoices get addressed more quickly, online payment or not. At the same time, however, market research firm MarketsandMarkets reports that cloud-billing services are steadily on the rise, poised to become a $9.58 billion business by 2018. It's clear that online billing and payments is a service businesses need to consider if they want to improve their accounts receivable.
It certainly helped social media marketing agency SILVR Social improve their payment rates. “It wasn’t uncommon for us to get paid four to six months late,” says managing partner Loryn Lyle of her company's earlier struggles to get clients current on their balances due.
With online invoicing tools, however, that scenario changed: “We never go longer than nine business days without receiving payment," Lyle says. "Our improved cash flow has allowed us to move into a new office space and hire two full-time employees."
Old-School Payment Processing
But what if you're still deciding whether to take your invoicing to the Web? You're not out of luck—there are strategies you can use offline for getting paid faster, too. Here are five ways to improve your invoicing procedures:
1. Set payment terms, then discuss and clarify. Client expectations should start with a clear understanding of your payment time frames; this needs to happen before you start work or deliver any goods. Clarifying these details up front won't always ensure that invoices are dealt with in the way you've asked, but mutually agreed-upon terms will give you a solid footing for any follow up you have to do later.
2. Shorten your grace periods. A wise idea is to set your invoice deadlines to a period of less than 30 days. Xero's data shows that, on average, invoices are often paid two weeks after the due date. Revising your pay-by structure can put your turnaround time back in the ballpark of one month.
3. Stay current on billing paperwork. Tracking billable hours and the like can sometimes fall to the bottom of a busy small-business owner's weekly to-do list. There are two reasons you shouldn't let that happen to you. One, playing catch-up is a path that leads to confusion and erroneous bills (hours or tasks get left off, the exact details of the work performed may be forgotten, etc.). Second, surprising a client with over-budget news at the end of a billing cycle can result in bad feelings and an even slower payment.
4. Stick to your agreed-upon schedule, then follow up on unpaid bills. Setting terms that carry zero consequences sends a message that your bills can easily be put off. Whenever a bill becomes overdue, promptly re-invoice or send monthly statements.
5. Weigh hard copy costs against online payment fees. Some business owners are quick to point out that online payment services such as PayPal or third-party platforms come with fees. And some balk at the notion of paying them. So weigh prospective online pay-now features—and their costs—against the time and expenses that come with pursuing "analog" invoices. Figure in the costs of administrative hours, expenses and the time spent billing—especially if you're the one doing the billing. If the pay-now platform's fee is smaller than the cost you've just worked out, then online billing could be the choice that gets your money in hand faster.
Whether you're billing online, using old-school hard-copy mailings, or both, getting paid on time is seldom about simply sending an invoice. Steady cash flow requires a blend of strategy, communication and administrative acuity. With the emergence of new tools, coupled with a fresh look at straightforward invoicing strategies, more small businesses can have the type of turnaround—and improved cash flow—that Lyle's company now enjoys.
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