Invoicing tips for small businesses
Late payments cost small businesses in the UK billions of pounds every year. From delayed growth to potential bankruptcy, not getting paid on time can seriously hurt your business. Here are our top tips to help you get paid faster.
A proper invoicing system is key for cashflow
A healthy cashflow is the lifeblood of every small business. A streamlined invoicing process is one way to make sure you get paid on time and keep your business moving in the right direction. But if you’re a small business owner, chances are you’ve been paid late before – and you’re not alone.
Late payments hurt small business growth
A 2015 study revealed that small and medium enterprises in the UK are owed a collective £26.8 billion – compared to just £4.5 billion owed to larger companies.
The study also showed that 80% of these SMEs are being kept waiting a month or more beyond their agreed invoice payment terms for payment. A quarter of businesses spend at least three hours a week chasing these late payments – these are precious hours they could be using to grow their business. Late payment leads to reduced growth, restricted productivity, increased borrowing and struggles to meet payroll.
Top seven tips to get paid faster
Sending an invoice is only part of the process of getting paid. Some of your customers will pay on time and without reminders, but others may need to be prompted. Here are our top seven tips for ensuring you get paid faster.
1. Discuss payment terms before you get started
Why wait 30 days for payment when you could be paid in a week? If you supply your products and services to your clients' deadlines, there's no reason why they shouldn't pay you just as quickly.
If you need to receive payment within 30 days, research suggests you should set your payment term to 13 days or less. Keep in mind that on average, debtors pay invoices two weeks after the due date.
2. Add late payment fees
If you've clearly set your payment terms and the client has ignored them, you’re entitled to charge interest in the form of late payment fees. Be prepared for robust feedback from your clients if you go down this route, and consider reversing the charge once the lesson has been learned. Also remember to clearly specify any late payment penalties on your invoices.
3. Keep detailed records of inventory and time
You need to be accurate with your time tracking – it’s not professional to estimate how many hours you worked retrospectively. Detailed records allow you to communicate with your client if you’re going over budget. They’ll appreciate this much more than an invoice that’s unexpectedly high.
4. Make the invoice clear and easy to understand
List the details of the job in a way that makes sense to the client – any confusion could create a payment lag. It’s also good to personalise your invoice with your business logo – it helps the professionalism of your work and your brand.
5. Invoice as soon as possible
Send your invoice as soon as possible. The sooner a client receives your invoice the sooner they’ll make payment. It also means they’ll receive it when the value of your work is still fresh in their mind. You don’t have to wait until you’re back in the office to do this – with cloud accounting software you can send invoices straight from your phone.
6. Make sure your invoice goes to the person paying
Make sure your invoice goes straight to the person who makes payment. That's not always the person for whom you're actually doing the work. Make sure you get the correct billing details for all your clients, otherwise your invoice could end up in the wrong inbox. If you’re unsure exactly who that is, give them a call.
7. Chase up late payments
Don't just 'fire and forget' – follow up invoices politely but firmly. Invoices might be ignored, lost in the mail or left unopened in the recipient's spam email folder. Let the client know immediately if their account is overdue. Send a statement or reminder after a few days, and pick up the phone if the payment is overdue by a week or more. Some accounting software sends you an update when the invoice has been opened.
Invest in an invoicing system that helps your business grow
Being a small business owner often means you’re short on time, but it’s worth making the effort to get your invoicing set up properly. Look into software, such as Chaser, InvoiceSherpa and Satago to automate invoice chasing and help you get paid on time. Having a streamlined invoicing process can drastically reduce the amount of time you spend collecting your hard-earned money. And that’s got to be great for your business.