Updated: Jan 14, 2020
One of the main questions I encounter when liaising with small businesses and freelancers is getting paid. Too often, small businesses are at the mercy of larger companies with heavily bureaucratic invoice processing procedures and bad payers.
Here are my tips to avoid cashflow issues and reduce payment times.
1. Airtight contract
Always make sure that you're payment terms and timeframes are in your contract. The best contract's go as far as to put payment dates in, especially if this is a recurring monthly payment. I know that traditionally most invoices have had a 30 - day payment term, but I would recommend bringing that down to a maximum of 14 days. It is also worth doing some level of KYC (know your customer) checks on the client. While I am not suggesting you turn Sherlock Holmes if they are a Limited company, a quick check of Companies House can help.
2. Use the EU late payment directive.
A lot of small businesses aren't aware of their rights in terms of late payment. As per the link below the directive sets out the late payment fees and interest on late accounts that you can levy. The table below breaks down the late fees:
You should add text to your invoices and your contract with the fees and interest that will apply to the client if payment is late.
3. Read your supplier agreement
With larger companies often comes supplier agreements, it may sound obvious, but it is crucial to make sure you read the wording. Often you will find that you agree to their payment terms instead of your own. There are occasions where you agree to payment terms that nullify the directive and your terms. The directive is only applicable if you have not decided on a different timescale with the supplier so, be very careful in what you sign.
4. Invoice compliance.
Before invoicing, I always advise to find out what their invoice process is. You want to make sure that your invoice is compliant for payment first time around. Often a client wants to pay the invoice but missing element such PO numbers can prevent them.
5. Know your client's payment process
So as well as knowing the client's invoice procedure, you will want to find out when they pay their invoices. The client has a set invoice payment run or that they prefer to do this on every other Tuesday but either way, it's good to find out.
6. Your invoicing process
The invoicing process I would suggest you follow is
a - Confirm to the client that you are going to invoice.and give the client a chance to share any issues amendments etc.
b - Always put read receipts on or use a software that allows you to track when they open the invoice.
c- A few days before the invoice is due I call or email to check they have received, and that it is going on the next payment run.
d- If payment is not received I reissue the invoice with the late fees and contact client. It is worth contact the client preferably on the phone to let them know.
7. Amend your payment terms
I hear quite regularly of businesses that know of bad payers and let them continue under the same terms. Don't be afraid to amend the payment terms of bad payers - I suggest moving to upfront payment only.
8. Make the payment process simple
Most clients want the simplest way to pay you so think about whether you would likely be paid quicker if you were to adopt one of the below:
For recurring payments - Gocardless is a godsend, it works like direct debit, and once it is set up you and your client won't have to worry about payments.
For one-off and variable - As most of my clients are on Quickbooks and Xero, I have Paypal linked to the invoice and the client can pay directly to Paypal.
9. Recognise good payers
So this might seem simple, but recent research showed that saying thank you after payment of an invoice increases the chance of the client paying the next invoice on time by 5 %. With good payers, it is vital to try and keep a good rapport.
10 Be consistent
If you consistently invoice the client promptly and your wording and procedure stay the same, it creates a better experience for the client and is more likely to get you paid.
So while not every tip will work on every client using these tips can give you a comprehensive framework and help to reduce invoice payment times.