As we have discussed in previous blogs, there is no point being busy if you cannot collect what you are owed. By keeping on top of your invoicing you can reduce late payments and minimise bad debts.
Getting paid is one of the major challenges for any small business. When the person who issues the invoices also happens to be the business owner it can be difficult to find the time to send out invoices, never mind chase late payers.
The first step to effective invoicing is the document itself. Each invoice should clearly state the payment terms, for example ‘payment to be received no later than 30 days from date of invoice’ and should be issued promptly – how can you expect invoices issued late to be paid on time?
It might be stating the obvious but make sure all the invoice details are accurate. Even the slightest error can delay processing and therefore receipt of payment.
Payment terms should be reviewed regularly. It might be tempting to set short terms (such as 14 days from date of invoice) on the assumption that customers will pay late anyway, but you are better off setting realistic terms at the outset and ensuring those terms are adhered to.
Customers who persistently pay late should be contacted before their next payment run to ensure they have received and processed the invoice for payment.
Many small businesses are reluctant to enforce their right to charge interest on overdue invoices for fear it may jeopardise the business relationship. Another way to look at this is that persistent late payment could put you out of business.
Each invoice should therefore include the following text (or similar):
‘I understand and will exercise my statutory right to interest and compensation for debt recovery costs under the late payment legislation if I am not paid according to agreed credit terms’.
The expression ‘a bird in the hand is worth two in the bush’ is worth bearing in mind if you find yourself in dispute with a customer. Rather than waiting weeks or months for the dispute to be fully resolved, it might be worth offering to accept a percentage of the amount owed now and live to fight another day.
This approach can be particularly helpful if you feel you are being squeezed by a large customer who is making dubious claims about the accuracy of their order or the quality of the goods or services provided. There is little consolation in being in the right if you cannot keep your business going long enough to make your case.
Big Red Cloud can help you stay on top of your invoicing by making it easy to create invoices and maintain an accurate record of which invoices have been paid and when. No customer will appreciate being chased for a payment they have already made.
Our software can also alert you as soon as an invoice has been outstanding for 28 days (or any other payment term agreed with the customer) so you can decide how to pursue the payment. When it comes to invoice management, information really is power.