Improve Your Collections Cycle: 7 Tips for Better Invoicing

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BFF Manager

Another invoice goes out, and then the waiting game begins. Do you know that feeling? You’re not alone. For many business owners, the biggest challenge isn’t finding good clients; it’s getting those clients to pay quickly.

For many businesses, slow-paying clients is a big problem. When clients take their time to make a payment, it puts the entire operation in a tight position. After all, your bills don’t slow down just because your revenue does.

So, how do you get clients to pay faster? Or, more importantly, how do you get them to pay faster without harassing and alienating them?

tips for better invoicing

The truth is that you there’s no way you can force them to pay. They ultimately have to take action to do so. However, there are things you can do to encourage faster payment. If you’re simply sending out an invoice and hoping and praying, then you’re not doing everything in your power to get payment in the door as quickly as possible.

To get your clients to pay faster, you need to make payment as easy as possible for them. Keep in mind, processing invoices is a non-revenue-generating activity for them. It’s an administrative function. It’s not at the top of their priority list. Make it easy and convenient and they’ll be much more likely to pay.

Here are seven ways to change your invoicing process to encourage your customers to pay:

Make it clear that it’s an invoice.

This sounds simple, but it’s actually very important, especially if you’re working with a large company. Most businesses have processes that automatically route paper and email invoices directly to the payables department. However, that process could be slowed if the recipient doesn’t actually know that it’s an invoice.

If you send paper invoices, make sure the outside of the envelope is clearly marked “invoice.” That way, it’s more likely to be sent directly to payables rather than sit in a mail sorting pile. If you send email invoices, put the word “invoice” prominently in the subject line so the recipient will forward it to the right department.

Send it to the right person with the right information.

Again, think about your customer’s internal systems and how you can move your invoice quickly through those systems. Your main contact at the business may not be the person who processes invoices. For example, you may primarily deal with a manager or a purchasing agent. When you email them your invoice, it could sit in their inbox for a few days before they even forward it.

Instead, ask your contact if there’s someone who may be a better recipient for invoices. Perhaps you could send them directly to the account payables department. If your customer has a standing order with you, they may be able to give the receivables department a standing approval to pay all your invoices as they come in.

Also, be sure to include any required POs on your invoices. Purchase order numbers help your customer internally identify invoices and see if they’re approved. If you don’t include that information, the payables department may have to track down the purchaser, get approval, and log it in the system. That process could add days to the payment schedule.

Offer multiple payment options.

What’s faster than a “Pay now” button on an electronic invoice? If you want your customers to pay immediately, then you need to give them the means to do so. There was a time when accepting credit card payments online was advanced technology. Unless you were a big company, you had to collect all payments via check.

Those days are long gone. There are plenty of great options that allow you to send electronic invoices. Those invoices have links so your customers can pay by either credit card, wire transfer, or even electronic check. Once they pay, the money is in your account in a few days. You may have to pay a small fee for payment processing, but that fee will likely be well worth the rapid payments.

Reduce your payment terms.

Many business owners go with net-30 payment terms because they don’t want to risk offending the customer. However, net-30 can be a business killer in many industries. Think about it. You’re fronting the money for the labor, materials, and other resources needed to do the job. Then you’re billing when the job is complete and waiting another 30 days to get paid. In some cases, you may be going 60 or 90 days between the time the job is started and the time you get paid.

There’s no rule saying that you have to bill like this. You can decide your own payment terms. Try switching to net-15. Better yet, try billing for some or all of the job upfront. Cash flow problems are the biggest cause of business failure. Don’t let your business go under because you don’t want to offend someone.

Implement overdue fees and make them very clear.

Reducing your payment terms is only one step. You also need to implement consequences for not meeting those terms. Settle on a late-fee schedule for various points of delinquent payment. For instance, at 10 days overdue, you may want to charge a $25 late fee. At 30 days, maybe another $50. At 60 days, charge $100. At 90 days, it’s probably time to send them to a collection agency.

Whatever your schedule, make it very clear on the invoice. There’s no need to be combative about it or to over-describe it. Every customer will know what the schedule means. Just put it prominently on your invoice and let the schedule speak for itself.

Add a personalized “thank you” message.

Late fees may the stick with which you enforce quick payment. However, you may find that a softer touch is more effective. Try adding a personalized “thank you” message on the invoice. Address your customer by name and let him or her know how much you appreciate their business and the relationship. Then, thank them in advance for their prompt payment.

That kind of personalized message will help to strengthen your relationship while also politely relaying your request for them to pay quickly. They’ll respect your and appreciate your tact and professionalism.

Start outreach immediately.

Many business owners wait until a bill is late or even 30 days late before they make phone calls or send emails. There’s no need to wait that long before you start outreach. In fact, you may want to start the day you send the invoice. Simply send a quick email to your contact thanking them for their business and letting them know that you sent the invoice.

As time progresses without payment, gradually escalate the nature of your outreach. At 10 days without payment, you may want to send another friendly email thanking them for their business, asking if you can help with anything else, and reminding them of the invoice. You can do it again at 20 days, or at the day the invoice becomes past due. If the customer values your work, they likely won’t let it get to this point.

Invoicing is just like every other part of your business. It’s about knowing your priorities and communicating them in a professional manner. If you’re open and honest with your customers and if you provide high-value service, they’ll likely meet your terms.

Most payment delays aren’t deliberate. Rather, they occur because the customer is focused on other things. Help them help you. Make the invoices easy to pay and keep the communication lines open. If you do that, you’ll likely see your cash flow problems disappear.

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