As a small business owner, unpaid invoices can be a serious challenge. According to one report, around 13% of SMEs report unpaid invoices every year, and a separate report found that only 61% of invoices were paid on time. Businesses spend an average of 90 minutes a day chasing invoices, and almost 30% of businesses have claimed issues with cash flows that could result in redundancies in the long-term, which is concerning in today’s uncertain economic and political climate where firms need cash flow more than ever before.
Below, we’ve rounded up a few ways that you can prevent unpaid invoices from ruining your business, and offer some advice for those looking to chase late payments as a priority…
Follow your procedures
It’s vital that you develop a policy and procedure for handling late payments as a small business, and publish this policy online, including it in your invoices. Ask yourself whether you have followed the correct procedures, check you actually sent the invoice, and ensure your payment terms were clear. You should also ask whether you sent your payment request to the right person and whether your address and bank details are up to date. Accept that some invoices slip through the cracks and show some leniency in these challenging times, but whatever the circumstances, following your own rules is the best way to handle this.
Charge penalties on late payments
Some businesses offer a small discount – sometimes 1 or 2% – to encourage clients to pay their invoices upfront. If you’re not able to do this, or your clients aren’t motivated by early repayment incentives, you could charge a penalty fee for every day your invoice is overdue. Not only will this encourage your clients to get out their wallets and pay the invoice, but it’ll help you to cover the costs of chasing the invoice and dealing with the fallout of their late payment on your cashflow. Just make your late payment policy clear when clients sign up.
Use an escrow service
If you’re looking for a hassle-free approach to accepting payments from clients and need the confidence and peace of mind that they’re actually going to pay, consider using an escrow service. In short, this service involves clients paying in advance and the money being held in a safe deposit box, which you can only access once you’ve delivered goods or services. The PongoPay tradesmen payments service is a great example of this, offering tradies a convenient way to take payments for jobs such as home renovations and building work.
Consider getting personal
Although we’d always recommend keeping it professional when you’re dealing with paying clients, sometimes you need to take a different approach to reach some. Sending an email or a text message outlining your feelings can be a good way to tug at the heartstrings of a client who’s refusing to budge on a payment – express that you’re disappointed and be clear that their late payment is effecting your business. Bear in mind that such messages can have a negative impact on your business relationship, and they may choose to work with another provider in the future. Still, it’s usually effective in helping to clear unpaid invoices.
Do you have any other tips for chasing unpaid invoice? Let us know in the comments section below and check back to our website soon for more tips and tricks on running your business.