Getting your invoices paid on time is essential for every business, no matter what size or sector they are in. Making sure invoices are paid on time helps to keep cashflow moving and when credit control is managed well, it also saves time and effort, thereby reducing costs.
Late invoices cause many businesses undue stress, especially SMEs, as many of these have smaller cash reserves and reduced access to business overdrafts to help tide them over.
So, how can businesses help to improve their credit control and make sure their invoices get paid on time? Here are our top tips:
Put in writing your payment terms including any late fees to the client, ideally as a signed contract, before you start to provide goods and services. If you cannot agree a contract, then providing this in writing will still help to manage the expectations.
The sooner the invoice is issued, the sooner you can get paid. There are now business accountancy apps that can help you to send invoices as soon as you finish the job or have sent your goods out to your client. These services allow you to create invoices to match the brand of your businesses, to send these out using email, text and messaging apps, link you to payment services including credit cards, PayPal and Amazon pay and even send out reminders and issue late penalty fees. These apps also mean you can stay up-to-date with your cashflow position, outstanding invoices and payments that have been made. Firms that offer accountancy apps include SAGE, Intuit QuickBooks and FreshBooks.
Find out more about using a business accountancy app in our guide.
Different clients will have different expectations on the payment terms they want and will accept, and different businesses will be able to manage without being paid for shorter or longer periods of time. This will depend on the value of the goods or services and the nature of the relationship between the client and the supplier. You should also consider how long you can wait until you are paid before you start to incur costs or face difficulties paying your own suppliers. If you have 30-day terms with your suppliers, then 14-day terms with your clients will help to reduce the likelihood of a cashflow gap.
Make sure you check who needs to receive the invoice for payment, this may be the accounts department, the business owner or a third party such as an accountant or bookkeeper. You should make sure that the user of your service or goods is kept aware of the invoices you are sending. Some larger businesses may require you to issue invoices using an online portal.
Right first time will help to save time and make sure you are paid more quickly. The basics are to make your invoice clear, easy to understand and accurate. Make sure details such as purchase orders are included if these are required for the invoice to be processed. Some firms will reject invoices that do not contain the required information, and this can add weeks to your payment schedule. Include your bank details and any other methods by which you will accept payment such as credit card or PayPal.
Accountancy apps can help you to automate and send out late invoice reminders. If these are not successful, then you should contact the late payer by phone to investigate and agree when payment will be made.
If you are a business of fewer than 50 people and have an outstanding invoice with a larger firm of more than 50 people, then you can complain to the Small Business Commissioner. This Government-appointed organisation is impartial and aims to resolve disputes for unpaid invoices. They can also help to check contracts and make non-binding recommendations.
Invoice finance is a service provided by lenders to take away the hassle of chasing late payments and to make sure you are always paid on time. Invoice finance gets businesses paid quicker as the lender releases a percentage of the value of the invoices when they are raised. You can choose to give the lender responsibility for making sure the invoices are paid or to continue to manage this yourself. Some lenders may have criteria for the latter. Find out more in our review of invoice finance lenders or read more about how invoice finance works.
Find out if your business would benefit from invoice finance and how much cash you could release.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.