Outstanding invoices are a huge problem for Australian SMEs. According to Debtplacer, around $9 billion of outstanding invoices never actually get paid. That’s about $3,913 for every small business in Australia. In reality, some businesses are left owing much more than a few thousand dollars.
Overdue invoices are stressful for a few reasons. One, you’ve already done the work and deserve to be paid on time, and two, you still have a client relationship to maintain.
Regardless of who is in the wrong, there are several ways to manage an overdue invoice that won’t put your client relationships at risk.
Set your expectations for payments upfront
Setting your expectations upfront ensures that you’re on the same page with your clients from the very beginning. Communicate your payment terms before you send your first invoice to each client.
During the onboarding process go over:
- When you send invoices
- How long your client has to pay
- How you send invoices (mail, email, app)
- Accepted forms of payment
- Penalties and process for late payments
Make sure your internal staff is aware of your process. After all, your accounts department will be the ones executing it. Some businesses are unable to make payments any faster than 30 or 60 days. If this is the case, ask if there is another way, they can pay that is faster like a credit card. Having clear expectations makes it easier when it comes to chasing your clients up for outstanding payments.
Offer incentives for clients that pay on time
Late fees are one way to deal with overdue invoices. However, this can lead to its own set of problems. If a client pays the initial amount and not the additional late fees you are then left chasing them up for a smaller amount of money.
Instead, think about ways you can incentivize your clients to pay on time. Electricity companies often give bill payers a bonus for paying early. Offer your clients a discount for getting their payments through on time. Alternatively, you could offer a one-off gift or free products for clients that pay on time for an extended period of time.
Make sure you’re not the one in the wrong
Before you chase down your client for payment make sure you review things on your end. Check whether you sent your invoice on time, whether it was sent to the right person and whether you give your clients enough time to pay.
Short payment windows, may not give clients enough time for their accounts teams to receive, process, and pay your invoices. (That’s why setting expectations upfront is so important.) If invoices go to a staff member’s email address rather than a generic inbox it is a good idea to review your clients’ email addresses once a year.
Make your reminders more personal
Emails often fall through the cracks and it’s easy to read them and then fail to act. Most businesses get bombarded with emails every day. Add something personal to your next invoice reminder email that will prompt a reply from your client. They are more likely to remember your email and act on it in a timely manner.
If you send out automated email reminders, why not try and make them more interesting? Send out a reminder that uses your brand logo, colours, and graphics to capture your client’s attention and ensure your email isn’t left on read.
Help clients understand where you are coming from
As an SME you rely on cash flow to keep your business moving. While you know this, your clients might not be aware of how important timely payments are to your business. If you need to prompt your clients to pay on time, let them know how important their payment is to your business. A simple line in your email that states how important prompt payments are to your small business will suffice.
The same understanding should be extended towards your client. The global pandemic has hit businesses hard and there could be an unexpected reason they haven’t paid on time. If you think it’s a one off, reach out to your client by phone and simply ask them:
- Did you receive the email for your overdue invoice?
- Is there anything stopping you from paying that now?
- Are there any problems with the invoice that we can deal with?
- When will you be able to make the payment?
Extended payment terms can be crippling for small and medium-sized businesses. At ThinkCap we can help you use your unpaid income to pay staff or contractors and protect your relationships and reputation. Remove the stress of waiting for your milestone contracts to be paid on time with our trade, debtor, and invoice finance solutions that help keep your small business moving.
