What Your Business Can Do to Speed Up Invoice Payments
Prompt settling of overdue invoices takes away a lot of the financial stresses SMBs face. How much could you grow with more working capital?
Many small business owners face cash flow issues due to unpaid invoices.
But this problem isn’t new, and companies have discovered ways to speed up the collection of payments.
The purpose of this article is to share these methods with small business owners so that they get their invoices paid by the due date and maintain healthy cash flow.
Why Do So Many Business Owners Have Unpaid Invoices?
There are several different reasons why a company might accumulate unpaid invoices.
First and foremost, an unorganized accounts receivable system can be a major culprit. If you don’t know who owes you money in the first place, you’ll never get paid.
This is a big problem for new businesses, especially, because many of them spent so much time and energy growing their business that they neglected to build a proper invoice management system.
Of course, some business owners are just afraid to come off as aggressive, so they aren’t as persistent as they should be in collecting on their invoices.
Let’s not forget that small business owners are super busy. Chasing down unpaid debts is just one of the many daily tasks that business owners put off when they have work to do for other clients.
Not to mention, emergencies happen, and sometimes they leave businesses unable to pay. During the COVID crisis, for example, it’s become increasingly common for businesses (even large ones) to take 45 or even 60 days to pay.
For a small business, that’s too long!
How Does an Overdue Invoice Affect Your Business?
When past due invoices pile up, your business can suffer. You could find yourself unable to pay vendors, employees, or your own bills.
Many business owners are required to take on debt just to cover their operating expenses. An excessive amount of late invoices could even put your company out of business.
Due to the time value of money, the longer the original invoice goes unpaid, the less the payment is worth to you in the long run.
Money in your bank account can accrue interest. When the money that you should have made from services or products rendered goes unpaid, you lose out on potential interest earnings.
How to Speed Up Payment for Outstanding Invoices
With all these factors in mind, businesses should be determined to collect unpaid invoices in a timely manner. However, determination alone won’t get your clients to pay up.
Let’s discuss some effective ways to ensure your payment requests are answered.
Send the Bill Directly to the Accounts Payable Department
Smaller businesses may not have an AP department, but if your clients are large corporations, they should.
Even if you’re used to sending your invoices to the buyer, accounts payable is the department in charge of paying you. If you’re having trouble with unpaid or overdue invoices, the problem could be that the buyer is not getting them to AP, or not getting them there fast enough.
Contact the department and let them know that your invoices are overdue. Start with a friendly email that includes your contact and payment info, which could be the source of the problem. If you don’t get a response, call them directly.
Use Tact and Persistence
As discussed above, many small business owners are tentative about contacting their clients for unpaid invoices because they fear that they may come off sounding too aggressive and offend their customers.
That’s a reasonable fear — being aggressive will only drive customers away. But striking a delicate balance of persistence and tact will enable you to collect on your debts without scaring off your clients.
Don’t just send one reminder and consider it taken care of. Instead, stick to a set invoice schedule from the start. Accounting software programs like QuickBooks are helpful in this regard, as you can schedule payment reminders to send out if you haven’t received payment by a certain date.
Send a reminder email two weeks before the invoice is due to give your customer plenty of time to prepare their payment. If you don’t hear from them, send another notification a week before.
It’s typically best to avoid calling your client on the telephone until a day or two before the due date. A phone call could be the friendly reminder they need to avoid a late penalty, but calling too early or often can come across as pushy.
Show Sympathy (and Consider an Installment Plan)
People are busy. Some clients never intend for their invoices to become overdue; they just forget to pay them.
However, there may come a time where a customer tells you they’re unable to pay, especially if your clients are primarily small businesses (if your clients are major corporations like Coca-Cola, this problem probably won’t come up).
The most important thing to do here is to show concern for their problem. By showing the customer that you have sympathy for their situation, they’re more likely to have sympathy for yours.
If necessary, offer them a payment plan that allows them to pay in installments.
Keep in mind that any collected payment is better than none. Your only other option is to take legal action, which is expensive and often unsuccessful.
Be Flexible With Payment Options
Many businesses — even large corporations — are gravitating towards apps like Paypal and Bill.com as their preferred payment methods. And many small businesses rely on CashApp, Venmo, Google Pay, or Apple Pay.
Although you may have a preferred payment method, giving your clients options can help you get paid faster.
Aside from cash, cards, and payment apps, the next best payment method is ACH bank transfers. To complete these, you simply need the client’s bank routing and account numbers.
Once you have that information, you can withdraw the money immediately. This is an especially helpful way to collect payments from repeat customers.
How to Prevent Unpaid Invoices in the Future
Getting paid for an overdue invoice is nice, but your goal should be to prevent future invoices from going past due.
There will always be instances where customers can’t pay, of course, but you can still take measures to limit how often it happens.
Here are a few strategies that may help:
Effective Invoice Management
Effective invoice management is the best way to avoid overdue invoices. An organized billing system makes it easy to remind clients about upcoming due dates and notify them about their past-due bills.
That’s why it’s essential to have a solid accounts payable system in place for managing your invoices from the get-go.
While some companies prefer the old-fashioned handwritten invoice, most have upgraded to using professional accounting software for organization purposes.
These software programs take almost all of the hassle out of the invoicing process. They not only keep records of all your invoices, but they also send out email reminders to clients who’ve not yet paid you.
Accounting software also makes it easy to see all of your unpaid invoices, with the invoice number, customer contact information, and due date organized in a neat spreadsheet.
Related: Simple Small Business Solutions You Actually Need
Set Clear Payment Terms
It’s crucial to make your payment terms very clear from the beginning of your working relationship.
Whether you negotiate a contract with your client or take on their standard terms (which is more common when working with large companies and the government), make sure you’re both on the same page before you start working together.
They should know exactly how much they owe you, the payment due date, and where/how to deliver their payment.
Invoices should be as simple as possible. Making them easy to understand will prevent customer confusion, ensuring you get your money quicker.
Also, if you charge any late fees, you should clearly outline the terms to your customer on the invoice.
QuickBooks has some very helpful invoice templates on their website that you can simply fill out and send off.
And check out our Ideal Invoice video on our tutorials page for more info on drafting clear, concise billing statements.
If possible, hand (or send) the invoice to the customer as the transaction is taking place. This will protect you from clients claiming to be confused about the cost or payment schedule.
Ask for the Payment Upfront
Another thing to consider is billing the client at the beginning of the contract or before you ship their order. That way, you won’t have to worry whether or not they’re to pay you.
Some companies charge a 100% upfront payment before fulfilling any orders. Of course, that puts the client in the position of having to trust you, and it could cause you to lose potential customers.
A 50% down payment is a more reasonable option. You’ll get half of the money before you start working, and the client can pay the other half after you’ve delivered on your part of the deal.
You can also offer an early payment discount. Some of your clients might jump on the idea of saving money by paying the full amount upfront.
Related: Should You Ask for Payment Upon Receipt?
Charge for Late Payments
You might establish a late payment fee, which you’ll include on your invoice. This fee alone can prompt customers to pay on time. No one likes the idea of paying more than necessary.
On your invoice, state in bold type that a late fee penalty will apply to payments received after the due date. Be sure to note the exact amount of the late fee, whether it’s a set dollar amount or interest rate.
Just be sure to research and understand the legal maximum in your state, as there are limits on late fees in most states.
Collect Payments Through an Online Platform
Having an online payment hub makes it easier for your customers to pay and can increase your invoice collection rate.
Online payment is convenient and allows you to secure the money immediately. Also, you can embed a link to your payment hub in your reminder emails, allowing your customers to simply click and pay.
The easier you make it for your customers to pay, the more likely you will receive payment.
You can ask your customers to fill out an automated payment form that lets you bill their account directly when their product or service is delivered.
Of course, a foolproof way to ensure that you get paid to partner with an invoice payment service. NowAccount allows you to get paid immediately on your invoice while allowing your customers the flexibility to pay later.
Are You Struggling With Outstanding Invoices?
If your clients are mostly small businesses, there may be times when customers don’t or cannot pay.
If your clients are big businesses, they may not pay you fast enough. Corporations often have their own payment schedule and terms that don’t account for the cash flow needs of their suppliers.
Whatever the case, don’t despair. You are not alone.
Every business faces outstanding invoices, and it can get overwhelming when you can’t collect enough payments to keep your business afloat.
After all, you aren’t in the business of being a debt collector. You have much better things to do with your time.
Thankfully, you don’t have to face this problem by yourself. There are many services offering accelerated invoice payment solutions for companies like yours.
Here’s how these services work:
- You deliver your goods or services to your customer and create an invoice.
- Instead of sending this invoice to your customer, you would send it to your invoice accelerator.
- Once accepted, you will receive full payment of the invoice in just one day.
- When your client is ready to pay, they send their payment directly to your acceleration service.
In other words, invoice acceleration is a way to get those outstanding invoices paid ASAP. Increase your cash flow and stop worrying when your payments will arrive!
Now will manage invoice collection for you. See if you qualify and get paid today!
Unpaid invoices are a common struggle for small business owners, and they can become a real problem if they aren’t resolved.
By using the tried-and-true methods in this article, businesses can put that problem to rest and focus on providing the best services and products.
Prompt settling of overdue invoices takes away a lot of the financial stresses that small businesses face. Imagine how much progress you can make when you’re not being held back by a lack of working capital?
Now can take on the risk of non-payment and provide the funds when you need it, not when your customers are ready to pay.
Get paid immediately and grow your business fearlessly. Why wait to get paid when you can get paid Now?
