Is anything more stressful and annoying than when you don’t get paid on time?
Slow payments are a drag on businesses but there are practical steps you can take to speed up payments and improve credit control and cashflow.
1. Clear and Prompt Invoicing
The foundation of prompt payments starts with clear, accurate, and timely invoicing. Ensure your invoices are easy to understand, detailing all services provided, payment terms, and due dates. Use professional invoicing software to automate and streamline this process. Send invoices promptly after the delivery of goods or services to set the payment clock ticking.
Game-changer: If you send clients the same invoice each month then use your accounting software to make it an automatic recurring task – the computer remembers to do it so you don’t have to.
2. Define Payment Terms
Be explicit about your payment terms. Whether you require payment within 14, 30, or 60 days, make sure these terms are clearly stated on your invoices and agreed upfront with your clients. Consider offering incentives for early payments or implementing penalties for late payments to encourage timely settlements.
3. Use Digital Payment Methods
Embracing digital payment methods can significantly speed up the payment process. Online payment systems like PayPal, Stripe, and bank transfer services are faster and more convenient for everyone involved.
Ensure your payment options are flexible and customer-friendly.
Game-changer: Sign up to a direct debit service, such as GoCardless, which can take away almost all of your credit control nightmares.
4. Implement Automated Reminders
Automated reminders are a simple yet effective tool to prompt clients about upcoming payment due dates.
Most accounting software has built-in features to send out automated reminders. Set them up.
This can drastically reduce the instances of overlooked or forgotten invoices, thus accelerating the payment process.
5. Maintain Strong Client Relationships
This is often overlooked or it may just happen very well anyway.
Building and maintaining strong relationships with your clients can have a positive impact on your payment timelines.
Regular communication and good rapport can make it easier to address payment delays.
A personal touch can sometimes prompt faster payments as clients are more likely to prioritise someone they value and respect.
6. Offer Discounts for Early Payments
Consider offering a small discount for clients who pay early. It might be a small price to pay!
An early payment discount not only incentivises prompt payments but also demonstrates that you value their timely business.
Conversely, implementing a late fee policy can deter clients from delaying payments.
7. Conduct Credit Checks on New Clients
If you want to get paid on time then before entering into an agreement with a new client, conduct a credit check to assess their reliability.
This proactive measure can help you avoid potential payment issues by identifying clients with a history of late payments or financial instability.
8. Use Factoring Services to get paid on time
If cash flow is a persistent issue, consider using factoring services.
Factoring involves selling your accounts receivable to a third party at a discount, providing you with immediate cash flow.
While this comes at a cost, it can be a valuable tool for businesses needing quick access to funds. If you do use factoring then try to stop using it as soon as you can and don’t become reliant on it.
Game-changer: a client of ours used a big bank for factoring and they had a credit-control service. The big bank calling slow-payers to chase debts was much more effective than our client calling.
9. Legal Action as a Last Resort
While legal action should be a last resort, it’s important to have a plan in place for chronic non-payers. Engaging a collections agency or pursuing legal recourse can be necessary steps to ensure you receive payment for your services.
10. Regularly Review Your Processes and your target market
Regularly reviewing and updating your invoicing and payment processes can help identify bottlenecks and inefficiencies. Stay informed about new technologies and best practices in credit management to continuously improve your systems.
Also, review the target market you’re selling to. It may be that simply selling to a different client base can improve the speed at which you get paid.
For example, it maybe great to sell into large, international, quoted companies – but getting paid can be a nightmare!
Whatever you do – don’t stand still!
We see credit control as an issue for many businesses and we also see how they go about making sure they get paid on time.
The closest thing to a silver bullet in credit control is using a direct debit service. But where this is not an option you have to be constantly on top of credit control and getting paid.
Need a hand with cashflow and credit control?
Give Michael Austin a call on 020 7125 0270 or email info@bluedotconsutling.co.uk or drop in to see us if you find yourself in South West London.
Michael – @bluedotmichael
Related links:
How to create and share a USEFUL aged debtors report in Xero (YouTube)
Turn the QuickBooks customer balance detail report into your Customer Timeline (YouTube)
She’s a bulldozer when it comes to getting paid
Chartered Accountants – Bedford House, Fulham Green, London, SW6 3JW
