How to avoid late payments (and send your invoices on time)
Whenever you’ve finished a project, somehow you’re questioning whether sending the invoice instantly seems desperate.
But that depends completely on the type of work you do. So it’s frustrating when we’re given boilerplate advice that’s expected to work for any business. It’s just unrealistic.
Imagine you have a bucket. And every time you fill the bucket 80% of the water falls out. All you retain is a miserable 20%. How many times will you keep filling that bucket?
It’s simple: just once!
Once you notice the leak, you take action and fix the bucket.
Yet when it comes to financial advice for our small business, we continue to soak in bucket loads of information that doesn’t help us. Perhaps even less than 20% of it will ever work for us.
So what can we do about it?
When I cook, I Google a recipe and find the one that suits my needs best and then follow it. The outcome is dependent on the contents of the recipe. I’m not going to follow a recipe for Spaghetti Bolognese and end up with a Chicken Biryani. The same goes for financial advice. And yet many SMEs follow advice that’s better suited to large businesses. The rules simply do not apply.
So get vigilant about the advice you soak in and always question everything you read. Even what I’m writing here should be questioned. Read it all and then go away and learn more about each point.
And on that note, let’s explore three ways you can go about avoiding late payments.
- The moment you finish the project
- When your client wants it
- Automated payment reminders
1- Don’t underestimate promptness
Right at the beginning of the article we discussed whether sending an invoice immediately comes across a little desperate. At CreditStretcher we believe that the most professional approach to invoicing is to either follow the terms stated in the contract, or to invoice at the end of the project (no later).
Because you don’t want to risk the chance of the client asking for you to send an invoice. This could show that you’re unorganised. Plus, the quicker you invoice after finishing a project the more likely the client is to view the work you completed as important. It’s likely that, just a few weeks after you complete the project, your client will have moved on to something else she deems important. So get in there as soon as possible.
The earlier you invoice, the more bargaining power you have if your client hasn’t paid you on time.
2- When does the client want you to invoice?
When I started my first small business I didn’t set the right expectations with clients, and I spent at least 25% of my time chasing payments. At one point I was so stressed out I had to go see a therapist. The thing is, I wasn’t building a good relationship with my clients. I’d failed to understand how important it is to provide a good service AND foster strong relationships.
But when I changed this, I reduced the amount of time spent chasing payments down to almost nothing.
I realised that if I had an honest conversation with the client early in our relationship about when they’d like to invoiced, I could make them happy by being prompt on the day they stated. After a while, because the relationships were improving, I was able to bargain for shorter payment terms. All because I was willing to play the game on their terms. Doing this also meant I could budget more thoroughly because I knew when I was getting the money.
Ask your clients when they prefer to receive the invoice. You don’t necessarily have to cater to their needs, but it helps to know their expectations. If you disagree, just say. It never hurts to ask. You never know whether they’re struggling with cash flow issues too.
If your client gets paid on the 1st, perhaps you agree to get paid on the 4th. Doing that will surely create a stronger relationship between the two of you.
3- Remove the need to remember
As David Allen said “your brain is a thinking tool, NOT a storage device”. So the way we counteract that is to schedule reminders for every task that doesn’t absolutely need to be done now.
If a client hasn’t paid you on time it could be because she has forgotten. It happens a lot. But that doesn’t make it any less frustrating because it’s something we can’t control.
Or can we?
What about setting a calendar reminder to remind your client that the payment is due tomorrow, or in 2 or 3 days. This proactive approach isn’t rude or pushy. It’s professional. You’re not asking for the payment early. You’re simply noting that the payment is due soon.
By removing the mental clutter - “Has my customer paid yet? Have we followed up? Can I follow-up again?” - associated with chasing invoice payments frees you up to do better work for your clients, thus giving you the bargaining ability to negotiate better payment terms later on.
Invoicing tool QuickBooks recommend that you Automate reminders before and after the due date
Don’t wait until an invoice is 30, 45 or 60 days past the payment date before setting up an automatic payment reminder. Like with the initial invoice, the likelihood of collecting old invoices decreases over time.
So, sending your invoice immediately is not desperate.
Actually, it’s organised. And that’s what clients want to see from their suppliers. So instead of questioning the time and date of your invoice, why not agree it upfront with the client. That way you know that you’re both happy.
Right, I’ve got to get back to my Spaghetti Biryani.