Get Paid on Time

Getting Your Invoice Paid – 7 Top Tips

Small businesses often find it difficult to get paid on time.  Statistics show that a staggering 43%[1] of credit customers don’t pay their invoices when they should be paid!  The range of payment times (debtor days) varied from 7 days to an extremely challenging 134 days.

The average number of days that it takes to have an invoice settled is 56.

Not so much of a problem if your terms are EOM + 30. Nor if they are 60 days.  The vast majority of businesses however look to have their invoices paid within 30 days of the invoice date, many try for 14 days.  Trying to apply any longer term can be financially crippling to business cash flow, but is that wishful thinking on their part?  Is it unrealistic?

On average, the Scottish Pacific research found that SMEs have almost a third of their revenue (29%) tied up in outstanding invoices, with 16% of revenue locked into overdue invoices (outstanding beyond 90 days).  Those average figures include a great many businesses that do actually get paid within their allotted 30 day terms.  So, what is it that they do right?  Here are 7 tips that will enable your business to be paid when it should.

Hi, I’m Adrian Stead, managing director of Accounts Receivable Solutions, based in Australia and serving the whole of Australia.

  1. It Starts with the Credit Application

Would you personally lend money to someone you didn’t know?  Of course not, but you’d be surprised how many businesses do.

Small businesses, in particular, keen to get the new customer on board, often do not have them sign a credit application form nor do they provide Terms of Trade.  It is vital that both are obtained at the outset before any transactions take place.  Failure to do so, is akin to playing a game of which neither player knows the rules.  The Credit Application Form together with the Terms of Trade should be sent to the prospective customer in order to have the rules of the game established before engagement occurs.

The Credit Application Form enables you to learn about the potential customer, while the Terms of Trade let the customer know their obligations and rights in buying goods or services from you.  Both documents need to spell out very clearly when invoices must be paid and what the ramifications will be if they aren’t.

For that reason, “off the peg” forms should not be used.  Your business, your industry, is unique and the Terms must reflect that individuality and provide you with the most secure legal footing should matters get to an extreme point.

Accounts Receivable Solutions are able to design such forms for you, via a straight-forward questionnaire.  Available here.

  1. The Payment Terms

In olden times (i.e. before 1970!) invoices were mailed to customers who then arranged for a cheque to be drawn at a given time and mailed back to the invoicer.  It needed a number of days to finalise this, even when payment was made promptly.  So, 30, 60, 90 day terms were readily established and gentlemen’s promises were their bonds.

Not so today.  Invoices are sent electronically from online financial systems and received immediately.  Why, then should there be a delay in making the payment?  The purchaser has received the goods so should make prompt payment. Even 14 days is really too long to have to wait.

But, and it is a big “but”, suppliers unless they are in a totally dominant position in the market cannot effectively dictate terms.  It is the purchaser that will determine what the payment terms are.  If you don’t like them, they will go to someone else who will.  Large retail bodies in Australia are fine examples of this in action.  No matter what your terms are, you must accept theirs or you won’t do business.

But business expectations are slowly changing, so, try to offer the shortest payment terms that you can but be prepared to concede to custom and extend to longer if you must.  Have more than one Credit Application Form/Terms of Trade document set that you can send out but always ensure that the terms are understood, agreed upon and will be complied with.

Be prepared to offer a discount if payment is received within a short period of time or employ the services of an outsource Receivables expert that will keep your cash flow ticking over properly.

  1. Be Prepared

Don’t leave the completion of your invoice until the last moment.  If the work is still in progress, keep tabs on goods used, the quantity and their costs.  Set up a pro-forma invoice which, when the work is complete, can be converted to a final invoice to be sent out quickly.

You will also be able to know how actual costs compared to quoted costs are shaping up.  If you are encountering unforeseen problems that increase costs you will know in advance of the work being finalized and can negotiate an amendment with the customer, rather than waiting until he receives an invoice showing a charge greater than agreed.  This would delay payment as negotiations about those extras take place and a compromise possibly needed.

It is also much better customer relations to undertake the negotiations at an early stage.

  1. Timeliness

It doesn’t matter one iota what your agreed terms are if you don’t send your invoices out on time.  A plumber I know was excellent at his work; he was inundated with jobs and had a lot of return custom.  So much so, that the sending of invoices became delayed and he had to seek cash flow assistance from his bank.  The costs were unnecessarily burdensome.

We, at Accounts Receivable Solutions took over the invoicing for him as well as the receivables function so that not only does he now not have to stress about negative cash flow but he has peace of mind knowing that side of his business is taken care of at a much lower cost than otherwise.

  1. Invoice Follow Up

I would recommend that you have all invoices of significance followed up 48 hours after they have been sent out.

For a small business, that should be just about every invoice.  For larger businesses, the economics of having someone following up every invoice may not be viable yet as many as possible should be followed up.

One of the main reasons businesses don’t pay their accounts on time is because (legitimately or otherwise) their accounts payable section doesn’t have a particular invoice.  You usually find this out after the payment due date has elapsed and you are now chasing payment.  So, this could be End of Month plus 30 days plus however long it takes for the customer to get your copy invoice approved and placed into their next payment run.  This could extend to a further 30 to 60 days.

By ringing the customer 48 hours after the invoice has been sent you can ascertain whether:

  • The invoice has been received
  • The goods or service have been received
  • There are no problems with the goods or services (If there are problems, their Accounts Payable to determine what and let you know within the next 48 hours)
  • The invoice will be paid on their next payment run  (If not, why not?)

The good news is that the majority of credit customers will pay their accounts on time when asked. The problem for many businesses is that they just don’t ask in good time.

Now it may seem that it is too time consuming to have someone in your Company do this, yet the time actually saved in the long run is considerable (and that means lowered costs), not to mention the Customer Service that is being provided (don’t forget, all opportunities to talk to your customers should be welcomed)

So if your company isn’t doing this, start now or outsource the job to a reputable receivables company.

  1. Fees and Penalties

If your documentation and agreement is established (see point one, above) then there should be no reason why payment doesn’t occur when it should, especially if the Follow Up (point five, above) has been performed.  So if ever that should happen you would entitled to enforce additional charges in interest, admin/overdue fee as specified and agreed to in your Terms of Trade.

You have every right to do so but I would recommend discussion with the debtor first to find out the reason for the late payment, your right to make additional charges and be prepared to meet resistance and possibly loss of business if you do.

  1. Customer Service

The receivables function should be considered as Customer Service.  It should complete the whole package which your business extends to you purchaser, from initial sale, through its progress, to delivery and to post-sales attention, of which receivables is a part.  OK, so the Accounts person will be dealing with someone other than the purchasing party usually but the image that everyone of your team displays should be consistent with the corporate culture that you wish to project.

Talk to your debtors regularly, especially those long-term, repeat customers.  Make sure they are happy with their involvement with your Company at all levels and ensure senior management know of the feedback.

Businesses regularly underestimate just how much time needs to be spent in performing the invoicing/receivables task efficiently and professionally.  Small business owners particularly are often short of time to take care of the support elements of their business.  With Accounts Receivable Solutions, that can be taken care of easily and cost-effectively.

Contact me, Adrian Stead, at Accounts Receivable Solutions to learn more:

  • Email:  adrian@arswa.com
  • Tel:       04247 881 818
  • Website:  www.arswa.com.au

[1] Independent research conducted by market analysts East & Partners on behalf of national SME funder Scottish Pacific