Many business owners have trouble collecting their accounts receivable. A study by Interac noted that 71% of Canadian entrepreneurs struggle to get paid on time.
Not only can late payments prove detrimental to your cash flow – especially if you rely on that income to make payroll or pay your suppliers – chasing down delinquent accounts takes time away from growing your business.
Wondering how to get your clients to pay on time? Try these seven tips.
Seven tips to get your clients to pay on time
1. Issue invoices in a timely manner
You can’t expect clients to pay you on time if you’re not diligent about issuing invoices as early as possible. Too many small businesses procrastinate over their invoicing. And when a client budgets to pay an invoice in January, for example, that doesn’t arrive until March, it’s not uncommon for them to reallocate those funds, making it difficult to pay your late bill on time.
Apart from invoicing promptly, the presentation and format of your invoices also matter. Include your business logo, and use consistent colour schemes and professional layouts to make invoices instantly recognizable and to convey professionalism. Make sure the invoice is easy to read with a clear layout, using headings and spacing appropriately to distinguish between different sections.
Be sure to include vital, detailed Information. This includes a detailed description of the goods or services, quantities, hours, and price per unit. The client's full name, address, and contact information should be clearly stated, as well as your contact information and business name. Each invoice should have a unique invoice number for easy tracking and reference. They should clearly state the issue date and the payment due date to avoid confusion about payment timelines.
2. Send invoices to the right person
Not only should you clarify who the accounts payable contact person is for every new client you take on, you need a clear process for keeping the contact information in your accounting system up to date so you can continue sending the invoice to the right person.
3. Take advantage of electronic invoices
Paper invoices sometimes get “lost in the mail,” resulting in late payments. Fortunately, online invoicing platforms like Waves, Square, and FreshBooks let you create and forward electronic invoices to your clients via email. Digital invoices even include a payment link that clients can access to make paying their bills more convenient. Benefits of invoicing platforms and electronic invoices include:
- Automatically generate and send invoices based on predefined schedules or triggers.
- Option to use a variety of templates that can be customized with your business logo, colours, and fonts to maintain brand consistency.
- Seamless integration with other business tools such as accounting software, CRM systems, and payment gateways.
- Track when invoices are sent, viewed, and paid, allowing for immediate follow-up actions if necessary.
- Allow clients to pay directly through the invoice using credit cards, bank transfers, or payment platforms like PayPal.
- Easily set up recurring billing for regular clients, which is perfect for subscription-based services or ongoing contracts.
4. Bill clients regularly
Does your business take on large projects that run months at a time? Rather than sending your client an enormous bill at the end of the project, discuss options in advance for:
- Invoicing them monthly, or
- Billing them based on “percentage of completion” by issuing invoices at milestones such as 25%, 50%, 75%, and 100% of project completion
Regular billing makes it easier for clients to manage their cash flow and pay their invoices on time.
5. Use discounts and late fees
Make sure that invoices clearly outline your payment terms. Specify accepted payment methods (such as cash, credit, electronic or bank transfers), payment terms (e.g., net 30), and any late payment penalties. Clearly outline any fees or interest for late payments to encourage timely payment.If you offer early payment discounts, specify this on the invoice to incentivize quicker payments.
Payment discounts and penalties encourage clients to pay in a timelier manner. While there’s a certain cost to offering early payment discounts like 2%/10 net 30, it’s frequently outweighed by the time saved on collections and the benefits of early cash inflow.
Charging late fees, meanwhile – like utility and phone companies do – can be as simple as including it on your invoices. (“Invoices not paid on time will be subject to a 2% interest penalty charge per month on the invoice total.”)
Whatever your payment terms and schedule, ensure your clients understand them upfront by including them in your contracts.
6. Accept alternative payments
Cheques remain a common payment option among businesses. But because they take time to process and mail, accepting alternative payment methods may make it easier for clients to pay you on time.
Credit cards, for example, can help you receive payments faster by charging your client’s card on their behalf as soon as payment is due.
However, the high processing fees attached to large payments may hurt your margins, and you’ll need to ensure invoice amounts fall inside your client’s credit card transaction limits. If your invoices typically include large amounts, you may have to rely on cheque or direct deposit payments instead.
Direct deposit is especially useful for recurring payments. Pre-authorized debit solutions like Rotessa and Plooto make it easy to withdraw money directly from your customer’s bank account when payment is due, helping you get paid faster.
7. Follow up on collections
Many business owners put it off because following up on client payments can be time-consuming and uncomfortable. Unfortunately, that can lead to writing off certain receivables as bad debt, which may negatively impact your cash flow and profits.
Instead, try developing an invoicing system that consistently follows up on delinquent accounts and assigns dedicated personnel to collections. Follow-up timing will very much depend on your business and the typical payment behaviour of your clients.
If, for example, you run a consulting business that regularly issues multiple large project invoices, you might follow up on every invoice before its due date to ensure payments will be made on time.
Meanwhile, it’s often worth splitting your customers into two groups regarding how a client pays.
- New or high-risk clients: A simple courtesy reminder before the invoice due date can prompt your client’s internal approval process, improving the likelihood that payment will be made by the due date. This also allows you to confirm the receipt of your bill and pre-empt any payment disputes.
- Low-risk clients: It’s common to follow up with clients who are rarely delinquent after the invoice due date.
Pro Tip: By setting automatic reminders in your accounting software to gently prompt clients about invoices that are coming due or overdue, you won’t have to manually track the status of individual invoices.
You might, for example:
- Send a gently-worded email reminder five days before an invoice is due
- Forward a more direct request for payment once invoices are 15 days past due
- Make follow-up phone calls to your payment contacts at 30 days overdue
Timely follow-ups are key in terms of how to get your clients to pay on time.
When performed in-house, however, the responsibility for collections often falls on a staff accountant, controller, or business owner. And that can mean de-prioritization of AR in favour of more urgent tasks.
Outsourcing your accounts receivable to an external partner like Enkel is a great way to ensure invoices are sent out promptly, and timely follow-ups are made.
Within six months, we helped a SaaS client reduce their invoicing and collections time from 45 to 5 hours per month and their Days Sales Outstanding (DSO) from 41 days to 27 days. Contact Enkel today to learn how we can help your business streamline its billing and improve your AR collections.
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