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It may be obvious, but it’s worth saying: the shorter the due date on your invoices, the faster you’ll get paid. Some industries have their own standard time for paying invoices, with the norm often being 30 days, but the amount of time is completely up to you.
Some companies in the past would offer over 90-day payment terms, which are more rare these days. Given the widespread use of digital invoicing and automatic payments, there is no longer a need for such long payment terms. After all, if your company breaks its back to deliver on a customer’s tight deadlines, you’re well within your rights to expect prompt payment.
Always discuss payment terms before you work with a new client. Make sure your clients know, understand and are able to meet your payment terms before you start working together.
What to include on your invoices
Having clearly defined payment terms and invoices that are easy to understand is a good starting point. At the very least, ensure your invoices contain the following:
- Who you are
- The name of the person who submitted the order
- The goods or services provided
- The total cost
- A purchase order, if provided
- The various ways they can pay
- The exact date when payment must be received
That last point is key. Rather than saying something vague, like “Payment within 30 days”, write “Payment due by October 31, 2021”. This will ensure that there is no chance of misunderstanding.
Use payment terms as part of the negotiation process. If clients try to push for a discount, ask for early payment, for example, within seven days, or even on receipt.
Tips for receiving invoice payments on time
There are some straightforward things you can work into your company’s process immediately that will help you receive invoice payments on time, or at least earlier than normal.
Send out invoices promptly, as soon as your services or goods are delivered.
Send reminders as the due date nears, then follow up again if the due date passes. Invoicing software can send out automatic reminders and make the whole process a lot easier. If clients ignore reminders, call them so they know you’re serious about receiving payment.
Keep a running tally of costs that will eventually be invoiced, (such as inventory delivered, hours worked, etc.). This will really speed up your invoicing process.
Send invoices to both the person who gave you the order and the person in the accounts department who will be paying it. This can really help to prevent your invoices from being “sat on.”
Spell out overdue fees:
Consider adding overdue fees to your payment terms. If a client constantly pays late and ignores reminders, send them an interest invoice. This should help speed up payment, and you can always consider waiving the penalty fee for the sake of the business relationship.
Consider an invoice factoring partner
Late payments can be a huge drain on small and medium-sized businesses’ cash flow. That same Sage survey found that 10% of late payments are written off as bad debt. They’re also a drain on resources: on average, businesses spend 15 days a year chasing unpaid invoices and 13% of those businesses don’t have a dedicated employee to do this.
Invoice factoring can be a solution to this problem. This is the process of selling your invoices to a factoring company in return for upfront working capital. You don’t need to waste time and energy chasing late payments, as your factoring partner will be responsible for collecting payment — letting you continue running your business and focusing on the day-to-day operations. What’s best, is it will greatly improve your cash flow.
To find out more about Blacksail’s invoice factoring service and how this can help solve challenges with invoice payments and late-payment problems, please call us at 1-866-272-3704 or contact us here today.