$825 billion is owed to small businesses in unpaid invoices – and every business owners knows that late payments mean poor cash flow. However, while it is fair to say a minority of customers/clients don’t make the best payers, it might not always be down to client error.
There are several common mistakes that businesses make when invoicing and collecting their money. These mistakes can lead to a delay in payment, or to your invoice getting ignored and the payment not being made at all. Let’s begin by taking a look at what you can do to lower your risk of late or missed payments.
Avoid Common Invoicing Mistakes
Late payments can lead to a catastrophic financial position for businesses, especially SMBs who are less able to absorb the losses. However, some of this can be avoided. Follow these tips to increase your chances of getting paid on time.
- Send the bill as soon as possible. Some businesses/freelancers have a set time to send out all their invoices. However, it is recommended that you issue invoices at the end of each milestone and a final invoice as soon as the project has been completed. If you have a service business, use a mobile payment system so you can bill clients as you go.
- Don’t forget to invoice. Some businesses simply overlook sending an invoice at the end of a project – get into the habit of issuing an invoice and sending it at the end of each project.
- Another common problem is not sending reminders; it’s important that you do, in case your first invoice gets overlooked. Sometimes customers have other things on their mind and they just forget to pay, or the invoice might have been mislaid. Send a reminder within 5-7 days of your invoice deadline as a gentle reminder.
Limiting Payment Options
Your business should offer the broadest variety of payment options possible; this makes it easier for customers to choose which method is most convenient to them, and can also boost sales.
Detail your accepted payment methods on your website and on your quotes so your customer is clear on the types of payments you accept before you start work for them.
Depending on the platform you use for making sales/delivering services, consider the following payment options:
- If you use a website to attract customers, set up a payment gateway so clients can pay a deposit before you start work.
- Mobile payments are good if you have a service business and want to collect payment for completed work once the job is finished.
- Bank deposits.
- PayPal is good for clients who want to make quick payments without revealing their credit card/debit card details. However, not everyone will be signed up to PayPal, so you’ll need alternative payment methods as well.
- ACH payments or eChecks through a payment gateway.
Whichever payments you choose to accept, ensure they make sense for your company and for your customers. For instance, some B2B businesses still prefer to pay by check. However, the delay in clearance time might not be ideal for your company – or your cash flow, so make your preferred methods clear.
In addition, if you are working with a B2B client, they are likely to have their own way of doing things – and this includes making payments. Before you start work, determine how they make payments to avoid delays when you invoice.
Not Being Organized
Having a proper system in place will allow you to bill customers quickly and easily. However, a lack of organization can mean your business is late in sending invoices, or sometimes you might just overlook sending them out.
If invoicing stresses you out, use some shortcuts to bring some order to your business:
- Create templates so you don’t need to start every invoice from scratch. If you are not using software and want to design your own invoices, there is a useful article here on how to set them up. If you are new to business and aren’t sure what information to include on your invoice, this article will act as a guide.
- To refine the invoicing process further, consider investing in FreshBooks or similar. Alternatively, you could use project management software to manage a project from start to finish, including the original quote and the final invoice.
- Get into the habit of sending invoices once the job has been completed, and create a backup system in case your computer crashes.
- Have a contract or terms and conditions in place which set out your payment terms and late charges, and detail these on your website/quotes/invoices.
Common Billing Mistakes with Corporate Clients
Billing corporate clients can come with its own problems and billing mistakes can result in late or missed payments, or invoices being returned to you if they don’t have the correct information.
If you are working on a contractor basis with an agency or are self-employed, the following pointers can reduce the chances of your payment getting forgotten or delayed.
- Ensure your invoice is compliant with their guidelines. Include time sheets, any requested codes or purchase order numbers, and submit it by the due date.
- Send the invoice to the right person; this should be an obvious one to avoid, but it does happen. Before sending an invoice, double check who you should be sending them to, and confirm the dates and the payment cycles.
- Some payments might seem overdue to you, but many companies work on a 30-day payment cycle, and other work on 60 days. Be clear on this prior to starting work, especially if you are working with agencies.
- Each corporate client has a specific way in which they want to be invoiced and how the invoice should be formatted. Follow their guidelines for invoicing, or it might lead to last-minute delays. Ask your regular clients for a template so you just need to change the main details such as hours worked, quantity, total, date and invoice numbers.
- Your invoices should always look professional. It might seem easier to create invoices in Word or to use a free template, but these don’t always portray a business-like image. Corporate clients want a professional looking invoice for their own financial records, and if yours doesn’t look up to standard, they might reject it and send it back to you.
- Ask corporate clients for a single point of contact. If your payment is late, you’ll know who to turn to.
Not Chasing Late Payments
As a business owner, you have probably experienced your fair share of occasions where you’ve struggled to get a payment from a client. When this happens, you can feel like you are walking a fine line: you don’t want to send reminders or threaten legal action in case it limits future work opportunities, but you still need to get paid. However, one of the biggest invoicing mistakes is not following up on money that is rightly yours.
Before we move on to chasing up late payments, first, there are many possible reasons why a payment has been missed. For instance, if the work was for a company, the invoice might not have got passed on to the right person, or someone from the accounts department might have been ill.
However, if time is passing by, the customer has been given more than adequate time to pay, and your polite emails and phone calls aren’t getting results, then it is time to get firmer with them.
You’ll likely to have your own definition of what you consider a reasonable payment period and it is considered good practice to send a reminder a few days before the due date. However, if, despite this, an invoice has become overdue, send another one and request the payment within a reasonable, specified time.
If you don’t get a response, try speaking to your customer again; it might be that they just don’t have the available funds and you could work out a payment plan. If you are working for a corporate client, try contacting a senior manager rather than the accounts department.
If all of these steps are unsuccessful, and the client isn’t responding then it might be time to send a demand letter or to find a collection agency to recover the payment for you; the small claims court is another avenue to pursue. Alternatively, if you have an insurance policy, see if that covers your losses from an unpaid invoice.
Not Having a Late Payments Policy
Some customers/clients are great to work with, but when the work is complete, they’ll like to take their time to settle an invoice. To limit this problem, have a late payments policy in place.
However, if you decide to implement a late payments policy, this shouldn’t come as a surprise to your client! And you are obliged to set your late payments terms out in writing. If you’re not sure how to construct a late payments policy, it is best to get legal advice, but you can get an idea of the most important components to include by searching online. Also:
- The fees you charge for late payments must follow the law. In the United States, fees shouldn’t exceed 10 per cent annually in some states, but these rates will vary in others.
- In your terms, it is advised you don’t use phrasing like net 30. Instead, give a solid number like payment due within 14 days, and send a friendly reminder before the invoice gets too close to payment date.
In addition to a late payments policy, consider introducing a small discount for clients who pay quickly.
Not Clarifying Your Charges
Lack of clarification is another overlooked mistake that businesses make – and it might be one of the reasons why you haven’t got paid: you need to provide a detailed, itemized invoice so the client knows exactly what each charge is for.
When itemizing, include:
- A clear description of the work carried out and the charges associated with it.
- Unit prices.
- Individual items.
- Quantity provided.
- Value-Added Tax (VAT).
- Any discounts, if application.
- Hours worked.
- Before billing your client, confirm the invoice total is consistent with the original quote you provided to them; use the invoice as an opportunity to reiterate your payment terms and late payment charges.
- In addition, include your contact details and provide several ways of contacting you in case your customer has a query about the invoice.
- Confirm that the total is correct before you send the invoice.
- With commercial clients, always submit by the specified deadline, or you won’t get paid until the next month. If the company asks you to code invoices in a certain way or to include purchase order numbers, double check that the information is correct.
- If you are sending out invoices in batches, make sure the right invoices are sent out to the right people.
- Finally, many businesses simply send the invoice over without checking confirming the details – especially if they are in a rush to get paid. If you are accepting payments by direct deposit, check your banks information is correct. For overseas customers, include the correct SWIFT or BIC code for your bank to avoid delays.
When payments are delayed, it’s too easy to blame the customer. However, there are several common billing mistakes that businesses make, which could put their company in financial jeopardy.
For instance, if you weren’t clear on the payment terms from the start, or didn’t include a reminder of them on your invoice, this might cause your customer to question the invoice; rather than discuss it with you, they might choose not to pay it if they feel the terms aren’t fair.
Other mistakes include not clarifying who the bill should be sent to and not offering customer incentives to encourage customers to pay quicker.
On the contrary, you might have done everything right, but for some reason your payment gets delayed or the invoice goes unpaid. In these circumstances, don’t neglect to follow up these payments, and ensure the client/customer is clear on late payment charges and any additional interest by setting up a payments policy.