Sadly, late or non-payment of invoices is a big problem within the small business community, and can quickly lead to major problems with cash flow. Ultimately this means that they can be the difference between a business being successful or not. A lot of business owners look to profit to gauge their success, but as I’ve said many times before, profit means absolutely nothing without good cash flow.
There’s been a big increase recently, in the freelancer/small business Facebook groups I’m part of, in the number of people who have not received payment for work they’ve completed. It’s scant consolation, but they’re certainly not alone. In a recent report commissioned by BDRC Continental and Ultimate Finance (Late payments not just a smaller business issue | C-Suite) a whopping 81% of small business owners said that they had an issue with late payments.
Fortunately, there are some simple steps you can take to help increase the likelihood of you being paid on time.
When it comes to managing expectations, having a good contract in place before you start work is worth its weight in gold. Not only should you outline the key dates related to the work, for example first proof of a design by 5th October, be clear about the fee you will be charging and when this should be paid. If you’re charging by the hour, perhaps consider agreeing a maximum number of hours to be billed per month and let your client know if it looks like you’ll go over this in a particular month so that they know ahead of time to expect a larger invoice that month.
People are more likely to deal with something promptly if they can remember why they’re doing it. Invoicing as soon as the work is completed means that the project, and the fantastic job you did, is still fresh in the client’s mind so they’re more likely to want to show you how much they appreciate your awesomeness by paying you quickly.
For larger projects, consider breaking it down into smaller milestones and invoicing once these have been delivered (making this clear in your contract, of course). You may also want to consider requesting a deposit prior to work starting.
Remember how your parents told you that you should always say please and thank you? They probably didn’t have your future life as a business owner in mind, but they were actually teaching you an important lesson about invoicing. According to a study last year by FreshBooks, being polite in your invoices increases the number being paid by 5%!
As well as remembering your manners, using plain English can also help. For example, “Payment is due within 14 days” is much clearer than “Net 14”.
Your clients are busy, make it as easy as possible for them to pay you (or in other words, make it difficult not to!) Services like Stripe and GoCardless can be integrated with many accounting packages, meaning that your clients can pay directly from their invoice.
If you have clients where you do regular work and invoice monthly, why not go one step further and ask them to sign up a monthly payment plan? Again, Stripe and GoCardless are great for this. There’s a small charge for using these services, but it’s tiny compared to the cost of not paying paid.