Business owners know that one of the most important steps in their daily business operation is making sure to get paid for services rendered. But asking for money (even when it’s owed) and, ensuring you get it in a timely manner can be a delicate process. Shawn Cadeau, CMO of the online billing service FreshBooks, says, “So while it might seem like simple advice, the sooner you send out an invoice the sooner you’ll get paid.”
Getting paid is a critical part of any business and it is the first step in getting repeat business. Executing this important step effectively and efficiently is the key.
The Small Business Report – Accounting shows that the #1 accounting challenge facing small businesses is accounts receivable and collecting money owed. The guide below explains basic steps for business owners to receive payments in whole and on-time.
Step 1. Create the contract
Before you start working you need to define the terms of work, the product or service to be delivered, as well as the cost and payment schedule. Though many small business owners prefer to trust verbal agreements, a legal contract shouldn’t be viewed as a problem or a burden – it’s a commitment and plan.
A contract protects both parties by explicitly stating the scope of work and fees. It makes sure everyone agrees on what will be done and how much it will cost. It’s also important to include a schedule for completion of work and payment. This will be important when it comes time to invoice.
Step 2. Design the right invoice
The design of your invoice can say a lot about your company. Opt for a clean format and keep it consistent. Use a numbered invoice system and add a barcode to your invoice for accurate tracking purposes. Itemize deliverables and include the payment designated in the contract. While this may seem like a no-brainer, always remember to say thank you and leave your contact information for customers to give them a quick way to ask questions or express concerns.
Step 3 Send the invoice on time and to the right people
Once the project is completed the invoice should be sent immediately and in line with the payment schedule in the invoice and contract. While most businesses give customers 30-60 days to pay, changing your billing cycle to 15 days can improve cash flow.
It’s also important to make sure the invoice gets to the right person. Emailing the individual you work with is the easiest way, though many companies may also want you to send copies to their billing departments. When you do send invoices to a corporate address make sure to include who is responsible for it, so they can be notified. Not every person will know who handles which department.
Step 4. Make it easy to pay
Checks have long been the standard for businesses to pay one another, but now there are a variety of options available. Find out what your customers and clients like to use and make sure you can accept it. Look into online services to accept credit cards and PayPal. Many banks also provide online bill payment services. Making it easier to pay means your clients will be quicker to pay.
Step 5. Follow up regularly, but not annoyingly
Once the invoice is sent it would be nice to be able to just sit back and relax, but that isn’t often the way it works. You need to be ready to follow up. According to a study from the Commercial Collection Agency Association, the probability of collecting on a delinquent account drops dramatically each month following the due date, from 81% after two months to 52% after six months. If you’ve given a client 30 or 60 days to pay an invoice, it’s a good idea to email them about a week before it’s due with a friendly reminder.
If you’ve given a client 30 or 60 days to pay an invoice, it’s a good idea to email them about a week before it’s due with a friendly reminder.
Once an invoice is past due you need to follow up regularly but not annoyingly. First, try to find out what’s causing the delay and see if you can establish a new payment schedule. If you’re not getting suitable responses follow up about once every two weeks. At all costs try to avoid legal means to get payment; it’s rarely worth it in the long run.
Step 6. Say thank you and check in from time to time
After you’ve received payment make sure to say thank you promptly. This is the right thing to do and it is also your first opportunity to see if they need anything else from you. Depending on your business, this is a good time to see about a new project or sale.
Beyond saying thank you, it’s always a good idea to check in with clients occasionally. Keep in mind that updating too frequently will just frustrate and alienate, but appropriately timed updates can be the beginning of new opportunities.
Businesses should make invoicing and collecting payments smooth and easy for customers. The steps listed above are a structured but simple process. Setting up your company’s step by-step guide will make the process better managed and initiates a better relationship with customers.