Your Guide to Getting Paid On Time
Making sure your small business gets paid on time
Ensuring your small business gets paid on time isn’t easy, but it’s well worth the effort.
In this guide, we’ll explain why timely payments are so important and we give you a range of actionable tips you can use to speed up client payments.
Why getting paid on time is crucial
Whether you’re an established business, or new to the market, getting paid on time enables you to take control and maintain a growth trajectory.
By developing a comprehensive approach to payment management, you can:
- Keep accurate financial records: Conveniently log invoice payments according to your preferred process and access all the information you need for strategic planning/tax reporting.
- Maintain your regular operations: Fund all your overheads and optimise your service without worrying about discovering a black hole in your funding stream.
- Manage your business cash flow: Gain a quick overview of your cash flow situation and make timely decisions that are financially advantageous.
- Plan future business growth: Predict when you’ll have sufficient resources available to scale up operations, or move into a new market.
Ultimately, a payment process that encourages clients to pay on time should form a critical element of your small business accountancy function and growth plan.
How can I ensure my small business gets paid on time?
These are just some of the steps you can take to ensure your small business gets paid on time as regularly as possible:
Optimise payment terms
Getting paid on time starts with your payment terms. Create standard terms you can apply to all clients, listing:
- Payment due dates (e.g. within 30 days of service delivery)
- How you prefer to be paid (online, cash, cheque etc.)
- Any non-approved payment methods (e.g. credit cards)
- The currency to pay in (if working across borders)
- Incentives for timely payments/penalties for late submissions
Whereas the standard payment window used to be 30 days, the ease with which clients can pay using digital technology has led many businesses to shorten their terms to 1-2 weeks.
Communicate these terms to clients before signing contracts, to set their expectations and ensure they’re up to speed with your processes.
You have two options when it comes to incentivising timely payments; the carrot or the stick.
So, depending on your margin and how important timely payments are for running your regular operations, think about offering clients a 1% discount for settling invoices early.
Alternatively, you could offer them a small reward (an extra product/service, for example) to be applied to their next order.
Charge interest for clients who pay late. Make sure you set this out clearly in your payment terms. You can choose the rate of interest and record it in your contract. Or, you could charge the standard late payment rate of 8% pa.
Provide payment options
The easier it is to pay your small business, the more likely you are to get paid on time.
30 and 60-day terms used widely in the past reflected analogue payment methods, such as dispatching a cheque in the post.
Things move much faster in the digital world. Therefore, you should provide convenient online payment options, enabling clients to pay simply by clicking a link in their invoice.
Try to give clients the option to pay via credit/debit card or through a clearing house (e.g. PayPal). The latter is typically free to set up, but may charge a fee whenever clients use the service.
Not only will digital payment options make customers’ lives easier, you’ll get paid faster and spend less time processing invoice payments.
Improve your invoicing
There are some golden rules you need to remember when it comes to invoicing:
- Dispatch invoices within the shortest possible timeframe
- Make them as easy to understand as possible
- Address the invoice to the person who processes payments, not the individual who commissioned the work
- List your payment terms clearly within the i
- nvoice itself as a reminder
Rather than wasting time drafting every invoice manually, you can now use accountancy software to administer this process automatically.
Set up a template for each client when you sign them up, input your terms and let the programme dispatch invoices without any further input.
Chase late payments
You can also set up software to dispatch payment reminders (of increasing severity) whenever a payment deadline is missed.
However, if you want to add even more weight to your payment reminder process, you can:
- Send a positively-worded email just before the deadline
- Dispatch a slightly stronger reminder immediately after the deadline passes
- Drop your customer a quick call if the email doesn’t produce the desired results
- Forward a monthly statement detailing the amount due
Failing this, the most potent weapon in your arsenal (short of debt collection) is your accountant.
Your accountant will be more experienced with negotiating payment terms and can help implement a payment plan to suit both parties if the client has cashflow problems.
Call in debt collectors
Using a debt collection agency has the potential to damage client relations, so should only be used as a last resort.
By this stage, the client has missed the opportunity to pay on time. However, showing that you’re serious can set a precedent and encourage timely payments should you agree to work with them again in future.
Compile a shortlist of reputable agencies that specialise in your industry and client base (e.g. B2B/consumer). You should feel confident they’re familiar with all the language and regulations associated with your sector.
Then, try to gauge their credentials from their certification and online reviews. Measure this against their fee structures to whittle your shortlist down to a single preferred agency.
How can your accountant help?
Sound like too much work? Outsource your payment process planning and monthly bookkeeping and cashflow management to Greavy & Co, your trusted accountancy partner. Visit our website at www.greavyandco.ie for more information.
With decades of experience behind us, we’ve come up with a host of tried-and-trusted methods that will encourage your clients to pay on time.
We can implement all of these steps, and more, to ensure you get paid on time while remaining focused on your core operations.
Greavy & Co Accountants Dublin,
8 Clanwilliam Square,
Grand Canal Quay,
(01) 604 0011