Running a business is a great option for those who want to keep their own schedule, be their own boss and watch their ideas grow. It isn’t always easy though. One of the problems that many businesses face is getting paid late.
Unlike a standard job where your pay lands in your bank account each month, getting paid isn’t as simple for business owners. In fact, it can be quite the experience having to price up your services, send out invoices and even chase late payments.
According to Tide, small to medium-sized businesses in the UK were chasing £50 billion in late payments as of 2020. This is a problem that can easily shut down a fledgeling company, so finding ways to deal with late payments is a key-skill for business owners.
Can you make it easier for clients to pay you?
Yes, it’s your clients’ responsibility to pay you but so that they have no excuse, make it as easy as possible to be paid. Although it isn’t as common any more, asking customers to pay via cheque or similar will really slow down your payments.
Simpler methods such as a ‘pay now’ button on your invoice can work wonders for response times. You might also consider accepting as many payment options as possible, including bank transfers, PayPal, WorldPay or credit cards. Just be aware that some of these may mean you pay fees on what you receive.
Set up regular reminders
Sometimes you might find you haven’t been paid because your invoice has either been lost, or has simply slipped your client’s mind. One great way to mitigate this is to set up regular reminders for invoices you send.
You can either set these as reminders after the payment has become overdue, or send a gentle nudge a week or two before the actual due date. Keeping these as polite reminders rather than blunt ‘chase-emails’ is a great way to give your clients that friendly nudge they may need.
Offer payment plans
If your client is struggling to pay their invoices, you may find that ‘owning up to it’ can be an embarrassing moment for them. One way to avoid this is by offering a payment plan if you think this might be the case.
While this isn’t a perfect solution for you, it can ease a bit of their outgoings, while still putting some money in your pocket. Not only will this strengthen your relationship, but you may even find the favour returned one day. At the very least, you’ll be getting some of the money in, even if only bit at a time.
Early payment incentives
If you desperately need your invoices to be paid as soon as possible, but don’t want to set shorter payment terms, how about offering early payment incentives? Everyone loves a good deal right? Would you pay your invoice straight away if you were offered say, a 2% discount for paying early?
Incentives such as these may lower your incomings a bit, but the tradeoff is that you’ll have your money much sooner. It can even be reiterated in marketing campaigns to pull in new customers.
Late payment fees
One method you could consider to protect yourself from late payments is to include late payment fees in your terms and conditions. While you don’t have to enforce these if a payment is late by a couple of days, it’s a good fallback to have in case of really late payments.
For example, if you have an unpaid invoice that has been dragging on for a couple of months, a quick tally up of late payment fees and a polite email to your client can be enough to hasten payment.
Not only can you charge a fee for late payments, you can also add a certain amount of interest to recoup any losses you may have suffered. For more information on exactly what you can charge, a quick look on the Government website will give you a better idea. If you still need more information, a quick chat with your accountant is extremely helpful.
Invoice finance/factoring
Another option you can fall back on is to use an invoice finance company. These companies work by essentially paying the outstanding invoices for you, or part of them.
When the client finally pays, the invoice finance company takes a cut for their service. It’s not ideal, because you may lose some of your payment on fees, but it’s also a popular way to patch up cash flow issues caused by late payments.
Of course, in an ideal world, everyone would pay on time, but if you’re struggling with late payments, these are some simple steps that might help!
Compare accounting software to find out more about automating your invoicing and payment reminders.
