When invoices aren't paid, it can mean cash flow disruptions and a general slowdown of entire businesses. Learning to build greater reliability into accounts receivables is something businesses need to turn their attention to. It comes from working out the improved administration of invoices.
It starts with good contracts
An ironclad contract can make it hard for clients to consider not being timely with their payments. A contract that both states a stiff and legally enforceable penalty or that imposes an interest rate on unpaid sums, can help.
Offer incentives for timely payment
Just as a penalty for overdue invoices helps hurry things along, incentives for timely payment can help, as well. From discounts to gift certificates, friendly encouragement often makes for fewer delays.
Develop a flawless invoice management system
As strange as it can seem, neglecting to send out invoices in a timely manner is one of the most common reasons why businesses don't get paid. Understandably, this happens more often with startups than with established businesses that have had time to put a system into place.
Invoices should be generated and sent out the moment a project or shipment completes, and not shortly before they are to fall due. Business owners tend to feel better about paying for things that they remember, not things that happened months ago.
Several other approaches assist in psychologically helping clients honor their commitments. While the tips here are useful ones, it's often a good idea to go out and ask clients directly about what they would like to see on their invoices.
• Put effort into designing a professional looking invoice with a prominent company logo. The more seriously a client takes you, the more serious they will be about paying.
• Detailed itemizing is important. Not only do businesses tend to feel better about paying for things that they clearly understand, clarity can help make sure that no payment is ever held up because of areas of confusion.
• Many invoices don't get paid on time, simply because the due date isn't easy to find. Some businesses, for example, make the mistake of using accountant jargon instead of putting down actual dates. They may mention time periods using language such as 'net 60' or 'net 30', for example, expecting clients to work 'due dates' out for themselves by adding the number of days mentioned to the generation date on the invoice. Not only do many businesses understand such terminology. Not being able to see clearly stated due dates simply puts them off.
• Too often, invoices arrive at the wrong person's desk and are simply ignored as a result. It's important to make sure that invoices are sent to the right desk at the company.
Make sure that reminders are automatically sent out
An automated invoice reminder service is an important part of a professional invoice management system. Reminders that begin automatically going out a few days ahead of the due date on each invoice, can be an effective way to encourage payment.
Work with an invoice factoring service
Invoice factoring services give businesses an effective and painless way to ensure immediate payment on their receivables. When a small business generates an invoice, services that deal in factoring without recourse offer to accept it and make immediate payment. They run credit checks on the invoicee, assume the risk that the invoice won't be honored, and wait to be paid. Factoring services can charge anything from 2% to 20% of the face value depending on the level of risk involved with specific invoices.
These services can be useful to small businesses in two ways. To begin, working with them on a regular basis can help them offload a difficult part of their business to professionals well-equipped for the task. Not only do they manage all invoicing, they are able to check the credit of each client and make it easy for businesses to ensure that they always do business with concerns that are creditworthy. In addition, they deal with the collection process, ensuring immediate payment.
To small businesses in the process of establishing themselves, often, the tasks of building a reputation and putting out a good product have most of their attention. As important as invoice management can be, it tends to slip under the radar. Working on an organized approach is vital.
Lucy Holmes started her business years ago and is able to pass on a number of tips to others who are just starting out, or who have been in business a few years and are now looking to grow.