In August this year, invoices took an average of 34 days to be paid despite 30-day terms, according to Xero's Small Business Insights. For these 34 days, small businesses are operating without cash that could be used to pursue important growth opportunities or acquire new assets.
Fortunately, there are ways to effectively encourage prompt repayment of your invoices, and they start with you.
Invoicing promptly and correctly
The sooner your client is aware of the money owed, the sooner they can get it back to you.
When seeking repayment for billable expenses or services rendered, invoicing clients in a timely manner is vital. The sooner your client is aware of the money owed, the sooner they can get it back to you.
Not only should your invoices be timely, they should also be correct. Besides the obvious risk of losing money when a client is accidentally billed too little, if a client feels you've charged differently from what they were quoted, they may contest your invoice which will lead to greater delays.
Invoices should not only be issued quickly, but need to be chased up as soon as they become overdue, if not earlier with friendly reminders.
Unfortunately, being proactive about asking your clients for money can agitate clients and in a worst-case scenario, affect your company's reputation.
Offer quick repayment incentives
Early settlement discounts are a great way to encourage other businesses to pay invoices as soon as possible. Consider offering an optional discount on invoices which are paid within 10 days - considerably earlier than the final due date of the invoice.
Often only a small discount will be necessary to entice other companies to save where they can and pay you on time.
It's important to remember that this discount likely comes right out of your profits. If you choose to offer early settlement discounts, you'll have to balance the loss of profit with the good that having greater cashflow will provide.
Maximise cashflow and competition with debtor finance
Offer a positive and competitive customer experience while maintaining stable cashflow.
In the interest of providing competitive invoice terms for your clients, you should consider using a debtor finance tool such as invoice factoring. With Cashflow Finance, you can receive up to 80 per cent of an outstanding invoice within 24 hours of your application.
Making use of debtor finance means you have easy access to working capital when needed without having to put any pressure on your clients. This way, you offer a positive and competitive customer experience while maintaining stable cashflow.
If you'd like to know more about debtor finance options, get in touch with the team at Cashflow Finance today.