Sending out an invoice for completed work or shipped products feel great. Receiving payment for that invoice is even better. And the best feeling is when the whole process is automated and it brings you less work and more joy. Generally, the automation of your accounting is the best, safest and fastest way to safe time for what really matters.
In today's accounting, we have the possibility to automate the majority of the tasks.
Unfortunately, those events don’t always occur in rapid succession. In fact, slow payment on invoices can be a big problem, especially to small business owners who are looking to maintain cash flow, buy new inventory, pay employees, and generally keep the lights on. Small business owners in the US statistically have on average only 2 - 3 month of operating expenses worth of cash at hand, while medium business only 3 - 4 weeks. So naturally, every dollar on the way counts, possibly slowing down company expanse plans.
Because we know this is an area where so many entrepreneurs struggle, today we’d like to offer you five quick, easy, and effective tips to help you get your invoices paid faster.
#1: Be Detailed on Your Invoices
Don’t leave any confusion about what your invoice is for when work was completed if a product is already been sent, and what rate has been charged. If possible, include information on the person (or people) who approved the purchase and indicate any external job codes. By speaking with someone at your customer’s company, you can probably find out what sort of information they like you to include on or with an invoice. Pay attention, because they might be telling you exactly what they need to get you paid faster.
Among other important elements to be included on your invoice are:
- Appropriate job and project listed
- Correct details of receiving person and company
- Two good company contacts
- Address and phone number must be correct
- Correct rate including possible breakdowns
To learn more about things to double-check on each of your invoices, read our brief guide What 5 Things to Check on Every Invoice You Send here.
#2: Offer Discounts for Faster Payments
This is a tried-and-true way to get your invoices taking care of faster, and it still works. Everybody loves to save money, and offering discounts (even as low as 0.5%) for prompt payments will be enough to get some people to resolve their balances faster. In fact, in some larger companies, bookkeepers and accountants are required to take advantage of available discounts, meaning they’ll get your check out of the door as quickly as possible if they can save money by doing so.
In other words, it is a form of trade finance and a way for companies to obtain a discount on a supplier’s invoice in exchange for paying the supplier early. A company pays less while the supplier receives payment earlier than they normally would.
For example, with a term of 2% 10 Net 30, the buyer may deduct 2% from the invoice price if they pay by day 10. An early payment discount is also commonly referred to as a Cash Discount or Prompt Payment Discount, or Early Payment Discount.
This type of incentive has its pros and cons. Among its pros are:
- One gets paid faster, this accelerates cashflow
- Reduces risks of non-payment or late payment
- It is an attractive alternative to cheap financing methods
Among its cons there are:
- For essential suppliers, this doesn't have to be win/win. As critical suppliers are with you for a longer period of time it is expected that there will be no payment issues from the longer period of time point of view - at least until the last invoice. In such a case, this created a 2% deduction from payment functioning as an interest rate and faster payments as short term loans. And 2% interest rate on 20 days saved up on cash flow is in case of above stated 10 Net 30 a staggering 36% annual interest rate, making it much more efficient to simply take a bank loan.
- Another issue with this is that it is voluntary, and the other side can simply choose not to follow it, making your cash flow even less predictable than before.
Learn more about discounts on early payment in this guide by BDC.com here.
#3: Give Multiple Payment Methods
Some customers might take weeks or months to cut a check, but will be happy to set up automatic credit card payments. Or, they might only sit down at a desk to review their books once a month, but log into their accounts daily and could easily make payments from there. Each situation is different, but the idea is to offer as many possible choices for payment as you can. You never know which one might be faster or more convenient for the men and women you work with.
When giving multiple payment methods, always make sure you provide sufficient details. Each method has its specifics, some require SWIFT code, some might need IBAN, some need routing number and some will require bank's headquarters address. Always make sure you provide on your invoice all the details. Another reason to provide all valid details is that banks often charge more for transfers when details are incorrect or missing. These fees can be as little as few dollars per transaction, however, especially for international money transfers, fees can be already in hundreds.
#4: Include a Stamped Envelope
When you’re working with other smaller businesses, this small, simple touch can make all the difference. You’d be surprised how much easier it is to get an overworked entrepreneur (somebody who’s working long days just like you) to pay an outstanding bill if you just make it easier for them. Don’t overlook the value of a pre-addressed, pre-stamped envelope with your address on it.
Making something as simple as possible is a major factor in convincing them to do it. We all know the case. If taking out the trash would be simpler, like just opening a window and throwing it out, we would be doing it daily. But as you often have to go out in front of the house to take there your bag of garbage, it can feel sometimes very intimidating, and so we postpone it. There is always more space inside the trash can, right?
And that is a simple daily activity. Now imagine how much less resistance there could be in payments.
#5: Be a Pest
When all else fails, sometimes it’s best to just be a “squeaky wheel.” When your customer (or the person who writes checks at their company) knows that they’ll be hearing from you early and often if your invoices are late, they’ll probably go out of their way to start paying them on time. You don’t have to pester clients with outstanding invoices endlessly, of course—but a few gentle and polite reminders can start to make an impression over time.
Some customers are going to take their time paying you, but by following these five tips, you can go a long way towards getting your outstanding invoices resolved more quickly. Just think of what a few small adjustments to the way you send your bills could do for your business!
If you want to save time, get control over your business finances, and enjoy the convenience of anywhere access to financial records, it’s time to try ZarMoney - an online cloud-based accounting software solution. ZarMoney will automate your tedious accounting tasks, will make sure your invoices are always updated and that information is accurate, will help you send them to your clients and that all effortlessly.
