The longer an invoice goes past its due date, the less likely your business will be able to collect on it. And for a small business, the loss of any income is tough to absorb.
Some 64 percent of small businesses surveyed in 2012 by the Wall Street Journal reported having invoices more than 60 days delinquent. And the U.S. Small Business Administration estimates that more than 25 percent of receivables that go 90 days past due are never collected. As time drags on, the number only climbs higher.
So how do you ensure that your invoices are paid on time? Here are some top tips from entrepreneurs and small business advisors:
1. Set payment expectations before any work is done
From the beginning, Mike Sprouse has included dates of payment in the initial contract with clients of his marketing strategy firm, The Sprouse Group. So whether he’s working with a high-end fashion brand or a professional services firm, the dates and terms of payment are clear.
“I just felt like it would be helpful to lay things out from the start, for both us and the client,” Sprouse says.
The strategy has worked well during the first three years of his business, he says. Sprouse also offers to send a calendar reminder about 10 days before the due date. “Sometimes clients just plain forget, and not out of any malice,” he says.
There’s no rule that says you can bill only once a month. If you’re working hard to maintain your business’s cash flow, try sending invoices more frequently, says business consultant Shell Black.
It may be easier for your client to pay a smaller amount every two weeks, says Black, who helps businesses set up and run Salesforce cloud computing software. Sometimes larger invoices must be authorized by an executive, he says, which can only delay payment further.
Consider which of your clients would be better served by a shorter cycle. Sprouse says about three quarters of his clients are invoiced monthly, and the rest are on biweekly terms.
Black says it’s also helpful to ask for a deposit, which generates cash flow and also sets an expectation that the balance will be coming due. “If you have a project that’s going to take a long time, I tend to agree with pulling some money up front and then billing on milestones within that project,” Black says.
3. Save time with technology
Small business owners have several choices of software and online services that can streamline invoicing and help them track due dates from anywhere, including PayPal, QuickBooks Online, and Bill.com. This can be especially helpful for a sole proprietor or small business owner with no office staff. Businesses can also accept payment online through PayPal, Amazon Payments, and Intuit, among others.
Tools like these, along with clear communication, will help you avoid the anguish of delinquency and keep your client relationships on good terms—for the long term.
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