Updated: Mar 11, 2021
Did you know that almost half of all invoices are paid late? Gosh, we were quite shocked with that figure too. 50% – that’s a whole lot of money being lost to businesses that rely upon swift transactions. In fact, according to bank money transfer service, Bacs, the UK’s small business community spent £6.7 billion in 2018 just attempting to collect invoices they were owed.
As if this wasn’t enough of a problem, Bacs also revealed that more than a quarter of small business owners have been forced to pay their own suppliers late as a consequence of unpaid invoices from larger companies.
This equates to cashflow nightmare for small business owners who regularly deal with larger organisations.
However, we’ve also noticed that some businesses are brilliant at getting the money they’re owed. Instead of waiting for weeks or months, they get paid in days. So how do they do it?
We’ve put together a few hints and tips that might support you in getting paid that little bit quicker in the future.
What are invoice payment terms?
Invoice payment terms spell out how you expect to be paid, and might include details like:
accepted forms of payment (maybe you won’t take credit cards)
the currency you deal in if you work across borders
late-payment penalties, if you charge them
But perhaps the most important payment term of all is the due date. When do you expect to be paid? In times gone by, it was standard to offer 30 days or even 60 days payment due date, but that’s changing as technology improves.
We’re sure some organisations still pay using cheque – but they’ll be few and far between. Technology gives us the ability to reduce the payment due date and thus re-think the 30-day terms.
So, here’s 4 points that could support you to get your invoices paid quicker.
Action point 1 – Short payment terms get you paid quicker
Invoices with short payment terms are more likely to go past due, but you still get your money sooner than if you give three or four weeks to pay.
As an example, research has found that issuing an invoice with a 1-week due date often will be paid around the 15-day mark, with a 2 week due date it’s 21 days paid and with a 3 week due date, the payment is usually paid around day 27.
You can see that all the due dates were missed – but you still got your invoice paid quicker than issuing 30-day terms!
Action point 2 – Payment terms are getting shorter
You needn’t feel bad about giving shorter invoice payment terms. Close to 75% of invoices ask for payment within 2 weeks, so expectations are changing.
Some customers may expect longer payment terms for bigger bills, but you may be able to negotiate with them. If they ask for a discount, for example, consider requesting faster payment in return. Alternatively, you could enter into a payment agreement for cashflow purposes.
Action point 3 – Get clients on the clock quickly
It doesn’t matter how short your invoice payment terms are if you don’t send the bill on time. Whether you give 30 days to pay, or just seven – the clock doesn’t start ticking until the invoice is in their hands.
Never put invoicing off. Whenever you do, you’re pushing back your payday. Speed up the process by using templates, sending invoices electronically, and even invoicing from your phone (so you can do it straight after a job is done).
Action point 4 – Don’t be afraid to chase payment
Don’t wait until an invoice is two weeks late before reminding a client they owe you. Try sending a friendly email as the due date approaches. Follow up again if they go past due.
We know that chasing invoices isn’t the most glamorous aspect of running your own business, but we would suggest that you don’t let this drop as it may just be the thing that keeps your head above water!
If you don’t have time for all the follow-up, consider:
using invoicing software that automatically sends reminder emails for you
asking your accountant if they’ll call overdue clients for you
At the SME Centre of Excellence we have a network of finance experts to support your business. Learn more via the SME CofE accountancy page.