One of the biggest problems faced by small businesses is late payment. It can have a critical impact on cashflow and is often the reason that businesses fail. You can, however, put yourself in a strong position by using affordable bookkeeping services or outsourcing your financial admin so that there’s always someone keeping tabs on what you’re owed and chasing those payments down.
Encouraging customers to pay
It’s the way you keep your business afloat, so why make it difficult for customers to pay you? Behavioural science suggests that humans are essentially lazy, looking for the easiest possible options. So that means it’s in your best interests to make it simple to pay you. And, as any experienced bookkeeper for small business owners knows – it’s the detail that counts. So here are some top tips:
Get all your invoicing details correct
Customers are more likely to refuse to pay if there is something wrong with your invoice. It might be the purchase order number, the name of the company, their address or the way you have itemised the invoice – they’ll send it back, or they’ll put it away somewhere and not bother about it until you chase it. So make sure you check all their details with them and have a database or system that ensures your invoices are accurate.
Check invoices have been received
This is a common excuse for customers not paying up. So part of a full service bookkeeping role is to call customers direct to make sure they have received the invoice and to check if they have any queries. That way, you’ll have a note on your system that says who you spoke to and confirms that they have accepted the invoice.
Credit check companies before you accept an order
In some businesses, this is tricky to do, but in others it’s an essential business practice. Particularly if you invoice after you have delivered the product or service, you should know that your customer is creditworthy and has the funds to pay your invoice. Don’t take on customers that don’t pass the check.
Know who authorises invoices
There was a time when businesses got paid by cheque and you only got paid when the signatories were around. Today, most invoices are settled electronically, but companies will still have a process for approving payment. If you have a purchase order, that is often enough, because your order and the amount will already be in your customer’s own system. If your work is more ad-hoc, however, it makes sense to understand who has to approve your invoice for payment. If necessary, make sure that your business bookkeeping service sends a copy of your invoice to this person direct, and that you know what the process is if they go on holiday or are off sick when your invoice is submitted.
Make your payment terms clear
And enforce them. 30 days is standard practice in the UK, but you can set your own payment terms. Make sure these are clear to your customer and that if they require different terms, you agree these directly. Then your bookkeeper can have a note of this and plan cashflow accordingly. If you have penalties for late payment, make sure you enforce them.
Make it easy for customers to pay
The best bookkeeping services will tell you that this is critical to getting paid on time. Make sure you have all your bank details clearly stated on your invoice. If you accept more than one method of payment – BACS, PayPal, cheque, for example – make all the details easy to find and use. Offer the option of a direct debit or standing order for regular work, so that both you and the client know that payment is coming out on a set date. Small businesses rarely offer credit, but you can offer a discount for payment within 7 days – or other incentives such as discounts on future orders.
However you manage your cashflow, getting paid the right amount at the right time is an essential part of your business planning. If you’re interested in using affordable bookkeeping services to help you manage this potentially tricky area of your business, feel free to call us on 0800 994 9016 or use our contact form in the menu above.