Research shows that around 50% of business invoices in Australia are paid late. This is not only extremely frustrating, but it also means that small business owners and managers spend hours tied up with administration and chasing payments.
It can also mean short term cash crunches that cause unnecessary stress for those running the business, and for employees, as bank balances that are short because of unpaid receivables can result in not having the right amount to pay salary and wages.
We’ve heard a lot of stories like this at Efficiency Partners, and we’ve also heard plenty of innovative ways to solve the problem of late payments and late invoices. Here are some of the most effective.
Get Your Side Right
The first step in getting your invoices paid promptly is to have them out the door as fast as possible after a job is completed or goods are despatched.
Every business has cycles that they do their work on. Maybe the accounts office processes all invoices each Wednesday morning. If you complete a job on Tuesday but don’t send your invoice until late Thursday, then the best case scenario is that you’re getting paid in a week’s time. If you have your side of the bargain sorted out by Tuesday afternoon though, you might just get paid the next day.
Invoices: Be Specific
Having a standard invoice template is a handy way to get faster at sending out your bills. But plenty of clients will have specific requirements that they need to be included in their invoices. These can range from purchase orders, work identification numbers, batch numbers in a specific format, or reference codes. Get a system in place so you have a standard template, but also a client-specific template if needed so that when you send them an invoice, it’s not sent back with changes required before you can get paid.
Reinforce Payment Terms
This is something that many people shy away from, but it’s not bad manners to reinforce when invoices are due. You can include one line about this in the email or document with the invoice attached, and reinforce it with a line in the invoice itself about the due date near the final amount payable.
Keep it polite and professional and include a sentiment like “Thank you for your custom” or “We look forward to working with you in the future” alongside the request.
You should also follow up regularly when an invoice is unpaid. Following up at regular intervals and with increasing frequency after the due date is a good way to increase payment rates.
Many invoices contain penalty clauses that include late fees, but another proven approach to getting bills paid on time is to offer an incentive. Even a small 3% discount on a large invoice payable can incentivise people to pay early. You can make this tactic more effective by putting a dollar value on the discount rather than a percentage. For example, for a building supplies invoice of $4400, the invoice could include a line that says: “Save $132 (3%) by paying on or before the due date”.
Get Administratively Smart
Of course, to streamline all of your administrative practices and get more advice that is specific to your business you can set an appointment with our friendly, experienced team. At Efficiency Partners, we’re ready to help with the administration and bookkeeping so that you can focus on growing your business.