When it comes to ensuring your clients pay their invoices on time, there’s no guaranteed formula for success. Unfortunately for entrepreneurs, statistics make it appear as though overdue invoices are becoming part and parcel of the risk that comes from working with new clients.
That’s not to say that every client you work with will make payment late, but it is discouraging to hear that £23.4 billion is owed in UK SME late payment debt. With the Covid-19 pandemic exacerbating the issue, the UK government has set about strengthening its voluntary Prompt Payment Code.
Under new reforms of the voluntary Code, payment periods have been cut in half to 30 days, with personal commitments required to be made by company CEOs and financial directors of signatories. As well as this, there have been proposals for the Small Business Commissioner to have increased power in launching investigations and levying fines on late payers.
Alongside these overarching measures, it’s important that freelancers and business owners take matters into their own hands to ensure prompt payment. Whilst a client may not have bad intentions when they delay payment, an unintended consequence of their action could result in poor cash flow for the business.
So, how can you best encourage clients to pay invoices faster? We have a few ideas you can try.
1. Shorten your current payment terms
Get into the habit of sending out your invoices as soon as possible! Once you have completed a project, don’t delay issuing a receipt as this will help your products or services stay fresh in your client’s mind.
Aside from this, if you continually experience late payment, you should consider shortening your current payment terms. This is because reduced terms highlight a sense of urgency, enticing clients to take payment seriously.
What’s more, though shortening your payment terms brings no guarantee you’ll get paid in the set timeframe, it does increase the likelihood of you being paid faster than with the original terms. For example, if you reduce your payment window from the standard 30 days to two weeks, it raises the chances that you’ll be paid in 30 days.
2. Offer benefits for early payment
In order to speed up your payment terms, you might want to consider offering a payment discount as an incentive for early payment. Many businesses choose to offer clients a 1 – 2% discount if they receive payment a certain number of days before the deadline.
If you aren’t comfortable offering a discount, think about another small freebie or client benefit you could offer that won’t cost you much or take up too much time. After all, everyone loves free stuff!
3. Give your clients payment options
These days, people are all about convenience. The easier you make it for your client to pay, the more likely they will be to do it on time. Because of this, it’s a good idea to give your clients a number of options for payment methods. There are lots of different ways of accepting payments, including:
- Credit card
- Bank transfer
- Online payments (PayPal)
- Mobile payments
4. Send friendly reminders
As with all aspects of your business, your invoice payment reminders should be planned carefully to ensure increased likelihood of success.
In order to be proactive, you could choose to send a polite reminder email to clients one week before the payment due date. In this reminder, you can thank them once again for their business, and subtly let them know you’re expecting to receive payment soon.
On the day payment is due, you can provide a clear call-to-action that payment is expected by the end of the day or close of business. In this email, you should once again make it as easy as possible for payment to be made, by providing all of the payment methods that you accept.
There are lots of invoice software and platforms out there that help with both creating an invoice and providing a timeline for managing and collecting payments.
5. Incorporate late payment fees
If you haven’t done so already, you should add late payment fees to your client contracts as a deterrent to paying late for your goods and services. Legally, you have the right to charge statutory interest fees to late paying business clients, set at 8% in addition to the Bank of England base rate.
Late payment fees should be clearly outlined in both your contract and invoices, and you should discuss this term with clients before you start working with them.
Whilst many businesses feel uneasy doing this, it can be a firm and fair way of encouraging timely payment. Of course you can be flexible with how you choose to enforce this, if a client is genuinely struggling with making payment by the invoice due date then allowances can be made.
Penny’s invoice payment solution
Overdue client invoices can be frustrating to deal with. Hopefully these five ways will help to ensure your client or customer pays by the deadline, leaving you to focus on the important aspects of growing your business
If you have already incorporated these methods into your payment collection strategy and haven’t had any luck, you may want to consider invoice finance.
Invoice finance with Penny allows you to choose invoices to sell in advance for a small admin fee. After selling the invoice to us, you receive the money upfront, and no longer have to waste time worrying about when your client will make payment.