You've finished a project for a client, done the work and put in the hours, sent your invoice, waited 30 days and you still haven't been paid yet. Sound familiar?
Well, that’s not surprising, given that around 30% of payments to small businesses in the UK are late (i.e. paid outside of the agreed payment terms), with around 1 in 10 saying that over 80% of payments are typically late.
Even more shocking is that the average value of each late payment is around £6,142!
Late payments aren’t just frustrating, they can put an immense amount of strain on businesses and their owners, causing cash flow issues, holding back business performance, preventing growth, and not to mention the wasted man hours spent chasing late payments (which averages around 1.2 days per month).
In 2014 alone, ending late payments would have saved 50,000 UK businesses from failing and added a £2.5 billion uplift in gross value added (a measure of economic output).
We know that businesses struggle to get paid on time, but what can you do to speed things up and minimise the impact of late payments on your business?
01. Run a quick credit check on new clients
Before your client signs on the dotted line and you agree terms, run a credit check. If nothing else, it will give you peace of mind that they’re not in financial difficulty, and if they are you have the option to walk away before you potentially end up out of pocket.
02. Make sure your invoices are easy to understand
Keep your invoices clear and make it obvious what you’re asking a client to pay you for. If your invoice covers several jobs or parts of a project, break that down and state what it is exactly that the invoice covers.
If you use sales orders or purchase orders for your clients, make sure you specify the order number that the invoice relates to.
Avoid using language your client might not be familiar with and where possible, spell things out – ‘Net-30 days’ might make sense to a larger company but ‘payment due within 30 days’ is much easier to understand. Likewise, acronyms and abbreviations relating to your services might make sense to you, but they probably won’t compute with your client.
03. Set clear payment terms
Tell your clients and customers exactly when and how you’d like to be paid, including what currency you deal in, what payment methods you accept and of course, how many days they have to pay your invoice.
Agree your payment terms from the outset and make sure you include them on every invoice you send, that way there’s no chance of there being any confusion.
04. Offer convenient ways to pay
Not everyone has a chequebook nowadays, and who wants to wait around for a cheque to clear anyway?
If you’re able to, accept payments by BACS, electronically (e.g. card payments or Paypal), cheque or even in cash. Offering multiple ways for your clients to pay you not only adds convenience but it could help you get paid quicker.
If your clients are struggling with their own cash flow, offering them a way to pay your invoice electronically online allows them the flexibility to make a payment using a credit card, and means you don’t have to wait until they have the funds available to pay you.
05. Find out your client’s process for making payments
Find out who the best person to send your invoices to is. There’s no point sending them to the sales department if it’s the accounts team who process payments, unless the person who booked in the work has to authorise the payment first.
Likewise, does a particular client only make payments on the last Friday of the month? Or do they hold on to invoices until the last day that they’re due? Get to know how they work and factor that into your invoicing strategy.
Every client will be different. Speak to them all from the outset and find out the best way to work with each of them.
06. Make invoicing a priority
Once you’ve finished working on something for a client, make raising and sending your invoice your top priority – after all, the quicker you invoice, the quicker you can get paid.
07. Send payment reminders
Sometimes the reason a client hasn’t paid you might be because they forgot or simply didn’t realise that the payment was due. Setting up a chase strategy to automatically notify clients when invoices are due and/or overdue, can save you a lot of hassle and legwork.
08. Communicate and be flexible when necessary
As always, communication is key when it comes to getting paid. Whether it be sending a gentle reminder that an invoice is due, or checking in to follow up on a project once it’s been completed, keeping open lines of communication can go a long way to keeping clients happy.
By maintaining a good relationship and having open communication with your clients, you not only open the doors for repeat business, but it can also help you to head off any potential problems by offering your clients a way to talk to you about things that might affect their ability to pay you.
For example, if they’re having cash flow issues of their own, or personal circumstances mean that they’re not at work at the moment, or perhaps they’re just off on vacation and not picking up their emails. If a client comes to you about any of these things, be flexible and work out alternative payment terms or set up a payment plan.
It’s a given, but try to always be polite and courteous, even if you’re chasing a 90-day overdue payment.
09. Send smaller invoices
If you’re invoicing for a large sum of money, breaking it down into a series of smaller invoices can help ensure you get paid quicker. A client is much more likely to pay an invoice if it’s for a lower sum of money.
For larger projects/jobs, this might mean invoicing for a percentage of the total cost at the start of a project (this will also help to cover any costs you might incur early on), then again half way through, with a final balance being charged once the project is complete.
This not only makes it easier for your client to pay you, it also helps with your cash flow, as you’re not waiting for one large sum of money to come in at the end of a project.
10. Offer an incentive for early payments
Who doesn’t love saving a few pennies? Offer your clients a discount off the total value of your invoice if they pay before your payment terms are due. The discount doesn’t have to be huge – 1 or 2% could be all it takes to spur your clients to get their payments in early.
11. Set penalties for late payments
It might seem harsh, but you’re entitled to charge a late payment fee if a client is taking the mick.
If you’re planning on setting a late payment fee, you should make this clear to your clients from the outset, to avoid any complications or unnecessary issues if/when you have to apply it.
‘Statutory interest‘ for overdue payments is set at 8% plus the Bank of England’s base rate for B2B transactions (currently 0.5%), meaning you’re entitled to charge a penalty of 8.5% on any payments that are made outside of your agreed payment terms.
Below is an example of what would be owed on a £2,000 invoice that’s 60 days overdue, using the current Bank of England base rate of 0.5%:
- The annual statutory interest would be: £2,000 x 0.085 = £170
- Take that figure and divide it 365 to work out the daily interest: £170 / 365 = £0.46
- After 60 days the late payment fee would be: £0.46 x 60 = £27.60
12. If all else fails, contain the situation and down tools
If you’ve tried everything to get a client to pay their invoice and you’ve still not been paid, don’t do any more work for them until they’ve settled their outstanding invoice(s).
It might seem drastic, but you’re entitled to get paid for the work that you’ve done and it might be just the push a client needs to realise that they can’t take a lend of you and your business.
It also stops you from ending up further out of pocket by doing additional work that you might end up not get paid for.
If you’re chasing payment from a client that you don’t do regular work for, this won’t make much difference. Instead, you may want to resort to stronger tactics and consider mediation, or if all else fails, making a county court claim (i.e. take your client to small claims court), however, be aware that both may incur costs. You can find out more about both options on the Government website.
If you’ve got any other tips for getting paid quicker, head toTwitter and let us know what they are, we’d love to hear them!
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