One of the biggest challenges for any sole trader or small- to medium-sized business is getting people to pay their invoices on time. Paying your own bills, including rent, wages, utilities and the like, seems to be as regular as clockwork, requiring direct debits and strict contractual agreements. But getting money to come the other way is always much more of a headache.
Almost every sole trader or small business has run into this problem at some point. Month after month goes by and you send countless emails, only to be fobbed off with excuse after excuse. Or worse still, the dreaded radio silence. That’s when you know things are bad and you start to worry that you may never see your hard-earned cash at all.
However, there are some things you can do to ensure that your invoices are paid sooner rather than later. Staying on top of your cashflow is very important. But follow the advice below and you can save yourself time and hassle, not to mention the endless worrying that you’re not going to get your money.
Maintain good relationships
The first thing you should do is remain friendly and polite. You want your money but you also want further contracts and jobs with these people. Use the personal approach, find out names and establish good contacts with relevant people in the business. Sending a terse email early on is never a good idea.
The more amenable you can be, the more likely you are to get paid early and in full. Think of getting served in a restaurant. If your staff member is courteous, polite, efficient and friendly, you are far more likely to leave a generous tip. So, never underestimate the power of positive psychology.
Invoice on time
Doing your invoices at the end of every month can be a pain. Even though it means you’ll (hopefully) be getting paid soon, it can be time-consuming to go through the books and draw up invoices. And yet, invoicing on time is good practice in so many ways.
First, sending your invoice when the work is fresh in people’s minds is always a good idea. Let it drag and the bond between idea and reality starts to break down and people are less inclined to pay. Also, if you send your invoice late, then you are setting a precedent for late payment. If it appears that your invoice isn’t that important then it begins to look like you don’t need the money in a hurry.
So, you should always set a good example by getting your invoices in bang on time. That means getting into good habits of keeping on top of your books. But there is an alternative for helping you to invoice, and it’s another major way of making sure you get paid on time. Keep reading to find out more.
Use invoicing software
As we mentioned, invoicing can be time-consuming and frustrating, especially when you’d rather be getting on with your work. Which is where invoicing software comes in. Systems like QuickBooks, Xero and FreshBooks are designed to streamline the invoicing process, extracting the necessary information from quotes and automatically sending prompt invoices to the right people.
This software takes the time and effort out of invoicing, meaning you can focus on running the business. You can customise the software, sending out personalised invoices, email reminders to people who have yet to pay, and setting up thank you emails for paid receipts.
You can also configure your software with your cashflow so that you are notified when payments are received and when others are outstanding. This means you can always stay up to date with how the business is running, very often simply by looking at the software dashboard.
Set out payment terms in the contract
Slightly more serious but equally as effective, you can protect yourself against late payment by stipulating the terms in the contract to begin with. This protects you from a legal position and makes it clear to anyone with whom you do business that you expect a prompt and punctual payment.
You can even include terms so that late payments are subject to additional costs and state that you are willing to take legal action if the terms are not met.
All the above methods are good business practice and work as preventative measures to ensure you are covered. But sometimes the best intentions don’t always work. Which means you may be forced to take other measures to make sure you are paid.
Get paid upfront
If you are working with people who have a habit of paying late, then you may need to insist that you are paid upfront for agreed work. This doesn’t have to be all the money, but you could agree a schedule of works, setting milestones at which you can reasonably ask for payments for the next section of the project.
Withhold your work
On other occasions, you may want to complete the work and send samples or snapshots of what you have done but withhold full delivery until you have received the money. No one wants to hold their work to ransom but it’s better than not being paid in full for your efforts.
If a payment is not forthcoming or a client is making noises about not being able to pay, then suggest a payment plan that will help them to meet their invoice.
And, of course, the last resort if your invoice remains unpaid is to take legal action. But no one really wants it to come to that.
The best course of action is to invest in invoicing software as soon as possible, as this has been proven to be an effective tool for making clients pay on time. Automated invoices and regular billing, thank you emails ensuring good relations and real time reporting that lets you see how the business is doing could all be invaluable.