You must have started your business with all the passion for the job and then drained most of it with the relentlessness nagging you need to do to get the money for your service. So why are people paying you late? And is there something you can do about it? This blog is the answer to those two questions.
- The invoice is here, is it crystal clear?
The invoice is a dreaded thing because people always feel dread giving away their money. Ensure the thing is clear to the point of mechanical precision. It must state the amount due and when it is due. Based on your client preferences, offer paper invoices or digitised ones. Don’t shy away from making the invoice look a little inviting; employ the subtle and powerful psychology of design and colour if you must, not the tedious arrangement that inspires more dread. Digital allows you to put the ‘pay now’ button in a conspicuous place, prompting them to, well, pay now.
- Limited Payment Options: Be a stubborn mule, then don’t get paid and mewl
Some companies need the paper trail, others want to go paperless. However, the digital mode is catching up quickly since it ensures immediacy, allows for manageable records and easily accessible information, and reduces laborious processes. Find out what mode of payment is easiest for customers and try and keep up. For instance services like PayPal are big and reliable names that also offer online invoicing. Someone may prefer cheques, someone the online format, and others for alternative electronic transfers. Give them the option. You need your money back, one way or another.
- Clogged Cogs in Client’s Cash Flows
You are bound to see a payment pattern with your clients – some consistent, some more or less up and down, and some consistently late or paid towards the end of the term. With the latter lot, if it’s not substandard accounting then it’s a cash flow problem. Either dangle the bait of a discount for early payment, or pull the plug on that connection. You probably think it’s better to maintain a client who eventually pays as opposed to having none. But you’d rather invest that time of asking for your money into finding a more reliable client and allowing your business to run more steadily.
- Invoice terms are kooky
Ideally you finish a job and you want your money. But it doesn’t always function that way. Clients can, perhaps, pay eventually and not immediately, and will move to your competitors if they aren’t given a term option. Either that or they have certain company terms when work with anyone and you need to follow their system if you want the business. Be sensible and fair. Come to an agreement where you offer them a reasonable amount of time to pay you back, but aren’t so lenient that your cash flow gets mucked up. Here’s the usual drill: small amounts – pay on receipt; medium amounts – net 15 or net 30; large amounts – net 60 or net 90. Offer incentives for early payment. Don’t settle with delayed payment terms ever.
- The wheels of a billing cycle overrun you
Sometimes larger clients clear outstanding invoices at certain specific times. Talk to them about the best time for you to submit an invoice to get the payment quickly. Pace yourself with them accordingly.
- A Contingency Provided For
A few things you can do to help yourself from being quagmired are to have a solid plan B:
- Convince your client you are a priority and make the payment process easy for them by offering digital payment formats and tiered invoicing.
- It’s preferable clients feel dutiful towards the payment without a domineering threat. Send gentle reminder and gentle warnings, but (when necessary) gentle threats reminding them of the warnings that their debt can be published online.
- Don’t release further work until they pay for previous work. This will become the difference between paying your employees or shutting shop.
- Choose customers who make timely payments and shed the other load. Go after bigger contracts once your reserves are replenished and you are steady on your financial feet to handle net 60s or 90s.
Manage your cash flow decisively. Don’t spend money you don’t have. Don’t spend money you think is coming. Don’t borrow money based on a due invoice. Until your client pays you don’t have the money and it doesn’t belong to you. Only your reserves can compensate.