Waiting for a late invoice payment isn’t just an inconvenience – it can have serious implications for your business cash flow. So, how can you encourage payments from your debtors? Read on to find out more…
If your business relies on regular invoices from various clients, you may have already experienced the consequences of late invoice payment. In the majority of instances, the debtor will eventually deliver what they owe you – but that doesn’t mean late payments should be ignored!
Late invoice payments present a number of potential issues. You’ll have to spend valuable time and resources chasing up the debtor, your cash flow will fall below what has been predicted, and your commercial relationship is likely to become strained.
Thankfully, there are a number of steps you can take, which should help to reduce the chances of receiving a late invoice payment from your debtors. It should also hopefully remove the possibility of your business having to issue a statutory demand. To learn more, read on…
10 ways to encourage timely invoice payments
1. Have a clear contract and payment terms in place
Many businesses make the mistake of putting aside a formal contract in favour of an implied agreement. This often comes back to haunt them when they are missing payments. So, creating a clear contract with simple payment terms should always be your first port of call if you intend to work with clients who you’ll be invoicing further down the line.
A contract should set out exactly what is expected of your debtor, allowing them to pay their invoices on time. It will also keep you legally protected if a dispute arises regarding the payment terms.
2. Keep payment terms as simple as possible
If you want to encourage your debtor to pay their invoices on time, then you’ll want to make sure that everything is kept as straightforward as possible. So, the payment terms you include in your contract shouldn’t be confusing, or have too many legal loopholes.
The clearer the payment terms, the higher chance your invoice will be paid, and the easier your relationship with your debtor will be.
3. Organise your invoicing schedule
If you want to encourage prompt invoice payments, then you’re going to want to make sure that you keep to a consistent schedule. After all, if your debtor doesn’t know when they might receive an invoice, it’s much less likely they’ll be able to organise a quick payment.
Your business can standardise your invoicing schedule by sending out invoices on specific days of the month (such as the 1st and 15th). If clients are aware of this schedule, and there are no significant changes, it could mean the difference between an early and late invoice payment.
4. Automate invoices where possible
It’s unlikely your business exclusively sends out invoices to a single client, which means you’ll need to keep multiple plates spinning. So, why not make things easier for yourself?
By converting to an automated invoicing process, you’ll reduce the chances of human error affecting how efficiently invoices are sent out. This means you’ll be receiving prompt payments across the board.
5. Request an upfront payment for a one-off project
In certain circumstances, you may only be sending out an invoice to a client for a single project. Where there isn’t an ongoing relationship, there is usually less of an incentive for a client to pay an invoice promptly. This, of course, presents an issue for your business.
For one-off projects, you could incentivise a prompt invoice payment by requesting an upfront payment before you start. Then, the rest of the money can be due when the project is complete. This will help to improve your cash flow, as well as allowing the client to spread their expenditure out.
6. Offer flexible payment options
Every business is different, which means there is no single ‘correct’ approach to invoicing. Some clients may prefer to pay larger sums in less frequent intervals – others may prefer the opposite.
If you want to improve your chances of receiving prompt invoice payments, you may need to consider working closely with your client, offering flexible payment options which suit their specific requirements.
7. Maintain regular contact
Commercial relationships can be difficult to manage, but it’s important that you stay in regular contact with your clients if you want to ensure that they’re going to pay their invoices on time.
It’s worth sending out regular reminders about when invoices are due, incorporating these reminders into something like a monthly newsletter. These gentle reminders will be useful for clients, and you won’t be guilty of causing unnecessary conflict. Anyone who has been guilty of missing payment deadlines in the past may need more reminders than others!
8. Be polite and civil
If a client has missed a payment deadline, you should always be polite and civil when first dealing with the situation. As we know, missed deadlines can be a nightmare, but that doesn’t mean there isn’t a reasonable explanation, or that the client isn’t taking every step to get the payment across to you.
If you are shown to be understanding of your client’s situation, they’re much more likely to make an effort to pay on time in the future.
9. Offer a small discount for early payment
This will entirely depend on what your cash flow looks like. In certain circumstances, it may be beneficial to secure a discounted payment that’s early, as opposed to a full payment that’s late.
A common method that businesses commonly use is to offer a small discount, such as 5 percent, for businesses that pay their invoices before the deadline. It’s amazing what affect a discount can make!
10. Add interest on late payments
On the other hand, you can include punishment for anyone that fails to meet a payment deadline in the form of interest.
Naturally, there’s a risk to this approach. The more interest that gets added to invoice payment, the more money your client will owe. And, if they’re struggling to make the first payment, they’ll be in a spot of bother as the fee continues to rise.
Is your business chasing late invoice payments?
As you can tell, encouraging prompt invoice payments from your clients takes plenty of time and effort. But, with sensible forward planning and a collaborative approach, you shouldn’t have any issues. It’ll just be down to your clients to uphold their end of the payment terms!
Have you got any more tips regarding invoice payments? Feel free to leave a comment below.