Earlier this month some of my expert tips on getting paid faster were featured in an article written by Cathy Anderson from Huffington Post. Cathy liked them so much she immediately implemented them in her own small business….
Here is the article !
We should be thankful that paying invoices isn’t an Olympic sport — because Australia would finish dead last.
A recent study by UK software firm MarketInvoice revealed Australian businesses ranked on the bottom of a list of countries including the US, Japan, Germany, Canada and Ireland, for paying invoices, with an average of 26.4 days overdue.
In response, finance company Square researched the invoice-paying behaviour of 1500 Australian businesses and discovered the worst offenders.
WA businesses are the worst offenders, paying 4.5 days over the due date on average and ACT customers and business are the quickest, paying 3.3 days early on average.
The ripple effect of businesses not paying their bills is painful – around $26 billion worth of pain.
In terms of business type, bars, clubs and lounges are dragging the chain by paying on average 7.4 days late, followed by contractors (4.1), professional services (2.5) and creatives (2.0). The fastest payers are accountants, handing over their cash 7.6 days early followed by jewellery retailers (4.0) and home goods retailers (1.2)
Unfortunately, being bad payers cause a ripple effect for other small businesses relying on regular cashflow to stay afloat.
A study completed late last year revealed Aussie small businesses are burdened by unpaid invoices, with SMEs owed $26 billion by their customers. One quarter of these firms need to take out loans to cover their debts.
So how can small business work harder to get their money?
Annette Burgess, owner of wedding video business Burgess Video has a few tricks up her sleeve to get customers to pay on time.
Small business owner Annette Burgess says keeping your invoice workflow simple, streamlined and tech-friendly is the best way to make sure you get paid.
“An early payment discount is great, alternatively you can charge a late payment fee,” she told The Huffington Post Australia. “Most of my clients are individuals, not companies, so I sometimes create a payment instalment option for those strapped for funds.”
Burgess says keeping invoicing simple — for both you and the client — is key.
“Ensure your invoice is a simple ‘click and pay’ option for your client, to make the process as easy as possible,” she said.
There are several companies that offer on-the-spot invoicing, such as Square and Invoice2Go as well as sophisticated online tools from Xero and MYOB to name a few.
“Find a system that includes all the features you’ll need. Use an online system where you can access it from anywhere at anytime, on your computer or phone and set up automatic reminders for overdue invoices,” Burgess advises.
Here, James Solomons, Head of Accounting at software firm Xero, offers his best tips for small business to get paid quickly.
1. Invoice at full speed
If your business isn’t the type to take payment in the spot, at least invoice that day.
“The longer it takes to invoice, the longer it takes to get paid,” Solomons told HuffPost Australia.
“Say you take two weeks to get it out because you’ve been busy, and your terms are 14 days and then someone doesn’t pay you for 30 days but the impact of that from a cashflow perspective is huge.
Solomons recommends making sure your payment terms are clear and agreed to by the clients — so they’ll have no excuses when the deadline rolls around.
2. Make it easy to pay
Most small businesses have moved on from the shoebox full-of-receipts approach to accounting, and invoicing is in the same boat. Automated systems now allow online invoices to be generated and emailed to clients who simply click on the link and pay.
Solomons agrees with Burgess that a ‘click and pay’ system is not only efficient — it improves cashflow.
“Invoicing workflow becomes business critical and it needs to be as streamlined as possible — you don’t want to make it hard for someone to pay you.”
3. Pay something upfront
Solomons says it’s a great idea to ask for a deposit or partial payment of a full invoice as you complete the work for a client — depending on the nature of the project, the timelines and if you both agree to the terms.
“Regardless if it’s professional services of trade, is there a point where you can request a deposit to cover yourself from incurring costs of buying materials and them not paying you?” he said. “In my accounting practice with new clients whose history we are unsure of, sometimes we ask for 50 percent of their fee.”
4. Offer discounts
Solomons says offering discounts of between 5 and 10 percent to pay an invoice early is a great way to encourage payment and establish good relationships with clients you’d like to work with again. But be sensible about the size of the discount.
“If it’s a $200 invoice you don’t want to give away $20,” he said.
5. Chase it down
As soon as an invoice is overdue, follow up with the customer, Solomons says. This could be an email reminder or a phone call.
And find out exactly who you need to talk to. If you have a large client you may only be dealing with one department, and they may not have forwarded your invoice to accounts — then you’ll have to wait up to another 30 days for it to be processed.
“Always ask for the email address of the accounts department so you send the invoice to both,” Solomons said. “It’s a little bit of effort at the front end but it is good practice.”
This article first appears on Huffington Post AU