Picture this: it’s your end of year. You’re poring over your spreadsheets, and things just aren’t adding up. You’re pulling your hair out, wondering where you went wrong in your small business’ accounting this year.
Finally, you realize: it’s not your accounting that’s off, it’s your payments. Specifically, you still have a handful of active invoices.
64% of small businesses have invoices that will go unpaid for at least 60 days. Late invoices lead to awkward conversations with customers and frustration over your business’ finances. You can do better.
By now, you might be asking yourself: how can I avoid this in the future? It’s easy. Payment terms and conditions.
These are essential for mapping out your business’ income and customer relationships simply and professionally. If you don’t have payment terms and conditions in place, it’s time to set yourself up for success.
Keep reading for eight tips on how.
Half the headache of invoicing is looking up client information, inputting information, and keeping track of all your various invoices across email and snail mail. Why create all this extra work for yourself when automatic invoicing programs exist today?
Sign up for a program like Billdu, which features automatic invoicing, expense tracking, and estimate forms. Your clients will be impressed with the professional quality of your correspondence, and you’ll have everything in one place.
Instill Short Payment Terms
Don’t feel bad about asking your clients to pay you quickly. They’ve got the dough, or else they wouldn’t have hired you for the job. It’s important not to undervalue your worth, and that includes your worthiness of being paid quickly and on time.
There are a ton of different types of payment terms. Make sure to choose the one that makes the most sense for your business, but keep it as short as possible.
Set Your Office Hours
Owning a small business can be hard. There are tons to do and think about, and you’re responsible for it all. And that’s beside the actual work itself!
35% of small business owners cite poor time management as a big contributor to feeling overwhelmed by their business. In real-life language, that’s the equivalent of you filling out invoices at 11 PM that should have gone out a week ago.
And every minute that those invoices aren’t out is another minute your payday gets pushed back.
Make sure to set yourself regularly occurring office hours each week to take care of administrative tasks. It’ll keep your business running smoothly, which is well worth the hour some business owners might perceive as lost.
It may seem naggy, but it’s actually a good customer service move to follow up with your clients a few days before their invoice is due. Call to ask if they’re happy with the service or product you provided, and ask for any relevant feedback they might have for you.
Gently remind them of the invoice due date, and ask if they need any sort of clarification on your payment terms and conditions. Before you know it, you’re chatting like old friends. Following up is a friendly way to retain your client base while still taking steps to make sure you’re getting paid on time.
Regardless of how much like old friends your clients feel to you, you’re not running a charity; you’re running a business. And business charge interest on late payments.
It might seem harsh, but it’s important that 100% of your invoices get paid. If the incentive of an interest charge on a late payment makes that happen, then so be it.
You can use an interest calculator to determine the right rate of interest for your various payment sizes! Calculate how much extra they’ll owe you per month, and weigh that against your ability to accept late payment to determine the right interest rate.
Checks sent via snail mail are a thing of the past. At least, they should be.
Allowing your customers to pay you digitally will speed up your whole payment process. It’s easier for them, meaning it’s better for you. It’s also the status quo nowadays.
Certain automated invoicing programs will allow you to accept credit cards, PayPal, or Stripe as a valid form of payment. Make sure to consider the processing fees, though. Set a recurring addition to invoices that will be paid digitally to cover those costs.
This is one of the biggest time-saving payment terms and conditions in the book. The easier the customer can pay you, the faster they’re going to.
Bill the Right Person
Too many invoices in small business history have gotten shuffled around from mailbox to mailbox, passing hands from family member to family member. Make sure to address the person who’s paying the bill directly to avoid any delay in the invoice being paid.
If you’re unsure, feel free to give your client a call and ask who manages the accounts. It’ll show that you’re professional, interested in clear communication, and want to make sure the right person is getting the right paperwork.
There should be some language in your payment terms and conditions that allow you to keep payment history and credit files on all of your clients. This way, if you ever have a repeat client, you’ll know exactly how they paid, and if they paid on time or not.
This is also a great way to make sure you’re staying on top of all your payments. If any of your clients have a payment plan with you, it’s on you to keep track of that. Make sure you’re keeping detailed notes on:
- dates paid
- amounts paid
- interest accrued
- time passed since invoice was sent
- time passed since the due date
Good bookkeeping is a cornerstone of a successful business.
Your Payment Terms and Conditions
Now that you’ve read up on some important tips for drafting your payment terms and conditions, you should never have a late invoice again. When you communicate openly about what’s expected of the client during the payment process, you eliminate surprises and make the whole process much smoother.