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Starting out on your own is daunting, especially if you are leaving behind the security of a guaranteed steady monthly salary. It is important to ensure your invoices are paid on time to keep cash coming into the business, but this is often easier said than done. We have put together seven helpful hints and tips to keep the cash coming in.
Nobody likes chasing up invoices. Other than the awkwardness that both parties no doubt feel whether they’re the chaser or the one being chased, it’s time-consuming, tedious and stressful. According to research carried out by Xero, our number one cloud bookkeeping choice, business owners report that almost half of their invoices are paid late.
Here are a few hints and tips for you to consider to help bring in your hard-earned cash faster!
1. Offer early settlement discounts
By offering early settlement discounts, yes, you may lose a few £££s but having that money in the bank earlier can make a huge difference to your cashflow. It may mean you are in the red for less days and therefore actually save some pennies in bank interest.
Only offer this if you can truly afford to, though, and seriously consider how much of a discount you will offer. An average early settlement discount would be around 5% for most industries. It isn’t huge, but it’s still money, and your client or customer may be more inclined to settle the invoice early if they have the incentive of saving a few pennies!
There are some industries where this is particularly popular and common-place – usually in retail or manufacturing – but there’s no reason why you can’t offer it as an option if you’re in a different sector.
2. Offer more convenient ways to pay
In this modern, tech-driven age, there are many ways you can make it easier and more convenient for your clients to pay you:
PayPal – used by huge numbers of us personally, most people know how to use PayPal and it saves time by holding bank/credit card details securely so there is very little data your client has to enter to make a fast and secure payment.
Stripe – used extensively by e-commerce businesses to take card payments through their internet shopping platforms.
Go-Cardless – a direct debit facility offering you the ability to collect recurring fees from clients. This is particularly useful if you have regular clients.
Xero integrates with these tools to help streamline your invoicing processes.
3. Set strict payment terms
Whilst 30 days payment terms are fairly standard, there is no rule that says you must follow suit. You can set whatever payment terms you wish as long as they are clearly explained to your clients.
Consider the size of your business, and your outgoings. More and more independent freelancers and sole traders are now asking for payments to be made within seven days. This helps to ensure there’s regular cashflow, especially when dealing with multiple clients and projects.
Adding a clause into your contract which states that interest will be added in the event of a late payment, and then following through if (hopefully not when!) a late payment occurs, can be an effective solution. Once a payment is missed and interest is added the first time, it’s unlikely your client or customer will make a late payment again!
While it can feel awkward and somewhat stingy to add interest charges to late invoices, especially if it’s not a particularly huge amount of money, remember that your client signed the contract, which means that they agreed to your terms, and should follow them on principle.
Remember, you are running a business and cashflow is imperative. Late payments can be detrimental to your finances, especially in the early days of your business.
4. Ensure your invoice clearly details the work carried out
Avoid emails back-and-forth by carefully detailing the work you carried out, the time spent on it, and when. Your client will then have no doubt about the exact work they are paying for, and by showing that you have tracked your working times displays your integrity and, in turn, builds trust.
This is particularly important when taking on a series of projects over the course of a few weeks.
5. Take a deposit
It is now becoming more common to collect a deposit or set-up an instalment plan, rather than wait to invoice for the full amount at the end of a project.
It’s totally up to you with regards to how much of a deposit you request. In some industries, it’s normal to ask for half up front, and the other half upon delivery of the work. If you’re just starting out, this can be a good way to ensure your cashflow doesn’t dip.
I would recommend this in the creative industries or with large and mid-to-long-term projects.
6. Don’t put invoicing off!
It’s certainly not the most exhilarating task you’ll ever undertake when running your business, but putting off the creation and sending of an invoice for whatever reason will never help you get your hands on your cash.
The sooner you send an invoice after you’ve finished a project or whatever work you’ve completed for a client or customer, the sooner you’re likely to be paid. There will always be tardy payers, but the majority of your clients will appreciate the fact that you’re on the ball.
Put yourself in your clients’ shoes: you hire somebody to undertake a task, which is completed to a great standard and delivered on time. You’re happy with the work and you’re ready to pay. But where’s the invoice? After a couple of weeks, your busy client may forget that they owe you money. That big bill may come as a surprise, and not a happy one!
Luckily, Xero offers an automatic invoice creation facility.
7. Chase for payment
Finally, don’t feel embarrassed chasing for payment. If you have done the job to the client’s expectations and provided the goods or services, you are entitled to payment, and you are entitled to receiving it within your terms.
It may be another admin task, but it is important that your clients know that you will be on their tail if they don’t meet your payment terms. It’s normal business practice to chase an overdue invoice, so try not to feel uneasy or stressed out about asking for your money. The client shouldn’t have put you in that position anyway, and they will most likely feel just as bad as you do.
One thing that is great about Xero is that it allows you to chase clients for outstanding payments automatically, and it can help take the discomfort out of the situation. No more difficult “hi, your invoice is late… please pay me!” emails to be exchanged! An automatic reminder can be set up to be sent to your clients once an invoice becomes overdue.
If you want to know more about invoicing and how Xero (our number one cloud bookkeeping choice) can help you, get in touch with us at Effective Accounting. We have worked with contractors and small businesses for over 10 years, and our founder, Nicola, has over 15 years’ experience in the industry.
Nicola J Sorrell -
Founder | Xero Champion | IR35 Expert
Tagged as: Self-Employed
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