30 Ways Small Businesses can get Paid Quicker?

According to Lloyd’s Bank, small and medium-sized companies in the UK were owed over £586 billion in unpaid invoices at the end of 2016. More recently, a survey carried out by Simply Business found that 80% of small business owners are owed money by their customers, with some sectors such as construction, being particularly hard hit.

As any small business owner will tell you, not being paid by customers can have a significant impact on the success of their company and being paid on time. For most businesses, cash flow is critical to their very survival.

If slow payments are inhibiting your smooth cash flow, then here are 30 tips to help you get paid quicker. Whilst some may not be relevant to your business model, I hope you find some real gems in here.

30 Ways Small Businesses can get Paid Quicker?

1. Agree a contract

There is often a lot of pressure on small business owners to begin work straight away and a feeling that, because they are small, bigger companies will be reluctant to get a contract in place. This isn’t the case and if the work you are doing is worth a significant amount of money, takes place over several months, you really should get a contract signed. This will protect you when it comes to requesting a payment for work done or should any other issues arise. A contract doesn’t need to be lengthy or complicated but should include the work that will be completed, the delivery date, the amount to be paid for the work and payment terms.

2. Agree payment terms

Include clear payment terms in your contract or, if you don’t have a contract, make sure these are agreed with the customer before the work begins. At the least they should be agreed in an email but ideally in writing. This means you are both aware of when invoices will be raised and when payments are due. You should also, always include your payment terms on your invoice so there can be no confusion as to when the invoice is due.

3. Make sure payment terms are understood

In the UK, most companies use a net 30 payment term, meaning invoices should be paid within 30 days of the issue date and includes weekends and bank holidays. Never assume your customer knows this though and make sure it is clearly explained from the outset, without using jargon. Again, including this payment terms clearly on your invoice will avoid confusion or clients or customers claiming ignorance.

4. Allow different payment types

When you are agreeing payment terms, you can also define how payment will be made. Some companies will want to use cheques, others bank transfers, others may want to use PayPal. The more payment options you can make available, the more likely you are to avoid delays and get paid on time.

5. Check a customer’s ability to pay

With new clients, it is perfectly acceptable to run a credit check or ask for references from their bank or other contractors to make sure they are able to pay. Credit checks do come at a cost so you may decide to limit this to larger contracts, but references have no charge attached. Another option is looking at a company’s accounts if they are publicly available. Due diligence like this can save you a lot of nasty surprises in the future and may even affect how you approach any future contract.

6. Ask for a deposit

Asking for a deposit (50% of the total contract value isn’t unusual) will offer you protection if the remaining payment is delayed and also gets customers in the habit of making payments as soon as they receive an invoice. Again, it’s probably only appropriate to ask for a deposit with large jobs but, if it helps your cash flow, it’s perfectly acceptable to implement this policy as standard practice for all jobs.

7. Ask for a retainer or regular payments

If you are working on a long-term project, agreeing a retainer or regular payments through the life of the contract can be a very sensible option. This will help your cash flow and will ensure that the customer gets used to paying you. It also means they won’t be hit with a large invoice at the end of the work; one which they might delay paying or could even struggle to pay in one go.

8. Ask for immediate payment

With new clients, you can always ask for immediate payment as a way of building trust and encouraging prompt payments going forward. Make it clear that you will change these payment terms after one, two or three invoices are paid (providing these invoices are paid in full and on time).

9. Raise invoices quickly

Raise invoices as soon as you have done the work when possible. If you work on-site, hand a copy of the invoice to the customer then and there. This means paying you will be fresh in your customer or client’s mind and, if there are issues, they are likely to be raised then and there.

10. Make it clear it is an invoice

We all receive a lot of emails and it is easy for things to get lost as a result. When sending your invoice, make it clear in the subject line that it’s your invoice. Make sure to outline the main points in the body of your email, including the work done and the payment due date. Ask the recipient to get back to you as soon as possible if there are any issues and make sure you provide a phone number to do this.

11. Invoice in line with contractual agreements

If you have agreed a retainer or regular payment, have this written into your contract and include the dates on which you will raise invoices. Then make sure you invoice the customer on those days. If clients are expecting an invoice on a regular date, they are more likely to process it quickly so you will continue with the work. If you miss invoice dates, then don’t be surprised if your clients miss payment deadlines.

12. Invoice the right person

Depending on the size of your client, you may well find that they have their own finance person or finance department. It is crucial therefore, when you raise an invoice, to make sure it is being sent to the right person. This will reduce any delays and the risk of invoices going missing. If your invoice needs to be signed off by someone outside of the finance department, beforehand then make sure you CC this person into your email as well.

13. Use professional invoices

The way an invoice looks can have an impact on how quickly you are paid. Make sure yours are professional looking. Use a pre-printed form if invoices need to be handwritten. Many small businesses now rely on cloud accounting packages like Xero or Freshbooks to do their invoicing, so if you do then make sure that these are setup properly and your invoices are going out on time.

14. Make sure your invoices are easy to understand

Keep your invoices simple. They should include key details, such as your company name, address, VAT number, and payment terms as well as a clear description of the work done. Finally, make sure you include contact details, so the customer can contact you if there are issues. Don’t leave any room for misinterpretation or ambiguity.

15. Include the information customers need

Make sure you include all the information your customer needs to make a payment. If the work can be broken up into stages or separate jobs, then put these as separate lines on your invoice, with a total at the bottom. If there is a lot of information to convey, think about sending through backup docs maybe in a spreadsheet doc. This might be a purchase order or contract or reference number. If you aren’t sure, ask before you send the invoice so there is no delay in payment.

16. Take advantage of cloud accounting

Use cloud accounting software like Xero or Freshbooks to help you manage your invoices. Some software will send out automated invoices for you, saving you time and reducing the likelihood of errors. Using these tools will also help you keep on top of what you’ve been paid and what you need to chase up by setting reminders. If you invoice a lot of clients, then you might also want to have a separate Excel spreadsheet showing all invoices receivable and payable. If you do use accounting software, try and automate it as much as possible. This can be for sending out individual invoices but also for scheduling retainer invoices, reminders and chasing emails.

17. Confirm receipt

Plausible deniability is the fall back of any business trying to delay payments for as long as possible and the ‘I never received your email’ excuse is an excuse that is commonplace as it’s hard to prove otherwise. It makes sense then, especially for larger invoices, to confirm receipt of your invoice with a quick phonecall or follow up email a day or so later. This gives the client or customer less excuses room when it comes to late payment.

18. Manage invoices on the go

Many accounting software tools now offer cloud-based systems meaning you can manage your accounts while you are out and about, and you don’t need to wait till you are in an office to raise invoices. Make sure your accounting software is setup to raise invoices automatically, so you don’t accidentally forget.

19. Incentivise fast payments

If you can afford to, offer a discount or some kind of incentive for early payment. It doesn’t have to be a significant discount, but anything that helps a customer save money is likely to encourage customers to pay quickly.

20. Penalise late payments

As well as discounts for early payments, you can also charge additional fees for late payments. Again, it doesn’t have to be a hefty fee, but it will discourage late payments. By using both the carrot and stick approach, you can’t be accused of being overly punitive by penalising late payments.

21. Stick to your payment terms

If you have set a penalty for late payment, you need to stick to this. If a customer asks you to waive the late fee and you do, they will likely pay late again and ask for you to waive the fee again because you’ve set a precedent.

22. Renegotiate

If your customer asks for you to change your payment terms, try and be flexible if you can. Look at why they are asking - are they going through a period of growth for example where they need to use their funds elsewhere - and whether they are a customer in good standing. It’s important not to cut off your nose to spite your face so if this is a good customer then work with them to come to an arrangement that suits you both. If you don’t want to change the terms long-term, consider a temporary change. It is better to make changes to keep a good customer than lose then over a change in payment terms.

23. Be polite

While getting paid is important, so is being polite. Customers are more likely to pay if they don’t feel you are being aggressive. Say thank you for your custom and that you appreciate prompt payment of invoices. The mantra that people to business with people not businesses is very apt here. Take the time to be personable with whoever is paying your invoices. The more human you and your business can come across, the more likely you are to get paid on time.

24. Use payment reminders

Once you have sent an invoice, don’t just sit back and wait for the money to come in. Remind your customers the payment is due, sending friendly reminders a week before the due date to prompt them to pay. Credit control can be time-consuming but knowing when to apply pressure and how much pressure can really help to shake up later payers and improve cash flow.

25. Keep on top of invoices

Once you have sent an invoice, it is easy to go on to the next job and forget the money is due. Review invoices regularly, sending out reminders when people are due to pay and if they haven’t. Don’t be afraid to chase people who haven’t paid - until they do. Identify those clients who are persistent bad payers and if necessary, escalate it as an issue with their management.

26. Don’t be afraid to ask for payment

When you are a small business owner, it’s easy to worry that you might lose customers if you follow up on payments. In most cases, however, payment hasn’t been made because a customer or client has just forgotten to pay you or a simple inputting error. Provided that you are polite in making your requests, no business should be offended by you asking for payment.

27. Build positive relationships with customers

When an invoice isn’t paid, it will be easier to chase it up if you have a good relationship with your customers. While you will want to be professional, it also helps to be friendly and getting to know a little about your customer on a personal level.

28. Say thank you

It takes twenty seconds to fire off a quick thank you email to clients that pay on time and it will help establish that friendly relationship. If you have a big client then you could even send them a Christmas card, with a note in it, saying thank you for being such a great client and prompt payer.

29. Keep the product (if you can)

While this won’t work for every business if you have produced a product for a customer, you could potentially hold some or all of it back until you have been paid. If you think you might want to do this, make sure payment on receipt is included in any payment terms.

Don’t be afraid to say no

If you have a customer that doesn’t pay on time regularly and fees have not changed their behaviour, you might need to say no to completing a project or carrying out more work until invoices are paid. It’s all too common for smaller companies to get bullied by larger companies but if you have a robust contract in place, then you are totally within your rights to refuse to do more work until payment is made. For larger jobs, it might pay to seek legal advice if you feel that this could become an issue.

Conclusion

Following these tips should, hopefully, help get you paid promptly. If they don’t and you have a customer who will not pay, you may need to resort to legal action, but this should always be a last resort as it is time-consuming and costly for all involved.

You might also need to consider walking away from a customer and not working for them again. While this is hard for small business owners to do, in the long-run it will allow you to focus on finding customers that do pay on time.

Following these steps won’t guarantee prompt payment but it will definitely encourage it and help you stay on top of your cash flow. Working with a professional accountancy firm like Plummer Parsons, will give you access to a lot more advice when it comes to cash flow.