How To Ensure Prompt Payment
We all know of the domino effect which can occur when one business fails to pay on time. The company responsible for the initial late payment then sets off a pattern of knock-on effects and cash flow issues to every other business down the line. In an ideal world, all companies should pay their invoices on time. But, in reality, for whatever the reason that is just not the case.
With such headlines being floated around last year as “Australian businesses worst in the world at paying their bills on time” and statistics which show that the average amount of time for an invoice to be paid is 26.4 days overdue, businesses must do all they can to ensure prompt payment.
So what can you do to ensure your clients pay on time?
Maintain good relationships
Having a good relationship with your client will make sure that they are just a phone call or email away. This removes any barrier between B2Bs and allows connecting with the accounts department much easier. If a problem does occur, then a simple reminder should solve it quickly.
Set your terms to ensure prompt payment
Make sure your terms are well defined to meet your needs. If your clients are consistently paying their bills late, then shorten the payment period so it becomes less of an issue. Don’t be so quick to offer 60 or 90-day invoice terms if suppliers require you to pay within 30 days. Be realistic to ensure that the cash is there when you need it. If they are continuously late, then it may be necessary to send them a reminder of the business terms.
Have your clients sign a contract
Formalise your business terms with a contract. Not only does it protect your business, but it also protects your customer as well should you be unable to deliver. If you find customers are paying later than normal, start them off on an earlier term period such as 14 or 21 days. You can always amend it further down the track if necessary.
Send regular invoices and reminders
It is important that you are organised with your finances and know at a glance what is owed to you and what you owe to others on any given day. Keep a running tally of amounts due until it is time to invoice. From both your perspective and that of your client, having an efficient invoicing process can minimise the majority of any billing issues and ensure prompt payment. Software such as Xero will help to guarantee quick payment, especially with their convenient reminder tools.
While it is true that many businesses pay late due to external circumstances or in-house cash flow issues, there are others that take advantage of the kindness of smaller firms that need the work. Always be firm and polite. With constant reminders and notifications, it won’t be too long before they get the message.