One of the biggest issues facing small business owners is getting clients to pay on time. The recent C2FO Working Capital Outlook Survey cites that out of 1800 small business owners across the UK, Germany, France, Italy and the US, 54% said cash flow problems was their biggest barrier to growth.
A late payment can cause chaos, so if you’re struggling to get a grip of your cash flow, here are nine ways you can encourage your clients to pay on time and prevent cash flow problems for your business.
9 ways to get invoices paid on time and prevent cash flow problems
- When you take on a new client, talk about your payment terms up front and get them to agree to pay your invoices on time. That way, there are no excuses for not knowing what your terms are
- Clearly show the payment date or terms on every invoice
- Keep your terms short – 7 days, 14 days or 30 days
- Set up a basic credit control system to give a polite nudge when an invoice goes over the due date
- When you are getting multiple people constantly paying late, consider a simple discount system whereby early payers receive a small discount. For example, you could offer a 1% discount when paying in full within 7 days. Print this prominently on your invoices, so your clients are aware of it
- If you do go with a discount, make sure you only offer what you can afford – you don’t want to erode your margin completely
- Consider making prompt payment part of your contract with your clients
- Don’t keep chasing repeat offenders. If they’re late, send in someone to collect the debt. If you’re too soft, they’ll continue as a late payer
- If you get someone who never pays on time, consider whether they are worth having as a client. Don’t forget it’s your business, and you’re within your rights to ‘sack’ someone who’s more trouble than their worth
Use an external credit controller
No one likes to talk about money, especially when it is chasing for payment. It may seem unnecessary to work with a credit control company, but it does mean that you don’t have to do all the chasing for your money.
Handing it over to someone else takes the awkwardness out of the situation and shows that you are a business that can’t be messed with.
You offer a professional service or product, so you deserve to be paid on time. The trouble is, if your clients are experiencing cash flow problems (because their customers aren’t paying on time), then the chances are you’re going to get caught up in the crossfire.
Be open and honest from the get-go. Make sure they’re aware of your payment terms and that you have a zero-tolerance policy for late payment.
The final word
Your priority is your business and your staff. Never feel uncomfortable chasing for payment or demanding prompt settlement of your invoices. After all, you wouldn’t go into Tesco for your weekly shop and walk out without paying as you shout over your shoulder, “I’ll get the money to you in the next week or so”, would you?