10 Ways to Get Your Invoices Paid on Time
One of the first things we look at when we onboard a new client is the Accounts Receivable Aging report. This is a list of invoices that are overdue (accountants use the term “outstanding”) and for how long. Sometimes that report is shocking. We recently took on a client with annual revenues of 3M and the AR Aging total – just the total that’s overdue – was $450,000, which is 15% of their total revenue for the year. When I looked over the list, the first thing I noticed is that they had already been giving generous credit terms: one invoice that was 90 days outstanding had net 60 terms. I was angry on the owner’s behalf.
Sometimes you have a deadbeat client that drags their feet, and with those clients you just have to get strict. Usually, though, there are little tweaks that can help reduce the obstacles to getting that invoice paid.
And now, drumroll please, our top ten tweaks to help reduce non-payment.
Our first category, eliminate surprises
Unexpected items on your invoices lead to questions from your clients and let’s face it, your client is not incentivized to resolve these issues quickly.
1. Fair warning:
Try to make sure your client is expecting everything that’s on their invoice (more or less). Extra hours, unapproved expenses, last month’s hours you forgot to invoice, etc. can all lead your client to freak out when they see that bottom line.
2. Invoice monthly:
Even though you have project milestones, chances are you’re working continuously for your client. Even if it’s just a few hours, make the effort to invoice every month to reduce not only the amount but the element of surprise. It also helps you stabilize your cashflow.
3. Have clear agreements:
Sometimes you can avoid non-payment before you even send an invoice by making sure to include clear payment terms and milestones, what expenses are pre-approved, and what the approval process is for everything else.
Next, try to eliminate obstacles
4. Offer a convenient payment method:
One reason clients don’t pay is because when they get your invoice, they don’t have a clearly defined means on their end to pay it. Larger and/or better organized businesses will stick your invoice into their machine no matter what, but if your clients are individuals or micro-businesses (or less organized businesses of any size), offering them a convenient way to pay right then and there (like an ACH or credit card payment link) can seriously reduce non-payment.
5. Offer a variety of payment methods:
Related but separate from the above, sometimes a cash-strapped client would be happy to pay your invoice if you accepted credit cards. If this isn’t part of your standard practice, in most places it’s acceptable to pass credit card fees onto your clients as long as you explicitly show what they are and what the rate (percentage) is.
6. Separate expenses:
Your client may have no problem at all with the services on your invoice but they may have something to say about that pricey lunch receipt you tried to expense. Eliminate this opportunity for non-payment for your services by keeping expenses on a separate invoice.
Or provide incentives:
7. Discounts:
At Tee Lex we offer long-term clients a 5% discount for enrolling in ACH auto pay. This is a healthy discount to offer on an open-ended engagement, but we find that it pays dividends: it completely removes invoicing and collection from our client relationships. This also eliminates non-payment entirely except when there is an issue of cashflow, and we manage cashflow for most of our clients so if this is going to happen, we’ll see it coming.
8. Structured terms:
In the merchandising sector, it’s very common to offer a discount for faster payment that’s exercised by the buyer. For example you might buy goods on "2/10/30” terms meaning you receive a 2% discount when you pay within 10 days, otherwise the full price applies and the terms are net 30. There’s no reason why this can’t be offered for services.
Or even dabble in armchair psychology:
9. Have a due date:
Don’t ask me why but people often ignore an invoice without a due date, or with a due date that is the same as the issue date. Maybe because they figure by the time they read it it’s already late, so what’s the difference? I have seen the phrase “Due upon receipt,” Net 3 and Net 7 terms dramatically improve payment by comparison.
10. Deliver with a personal message:
An email from an account manager with a link or attachment and a genuine note of appreciation may motivate some clients to pay because it makes them feel like they’re paying that person. A canned message from faceless-accounting-inbox@quickbooks.com is easier to leave sitting in someone’s inbox.