The lifeblood of any small or medium-sized business is cash flow, but what happens when that flow is disrupted by late invoice payments? According to Xero Small Business Insights for June 2023, New Zealand businesses waited an average of 24.2 days for payments, and invoices were paid 6.4 days late. If you’re grappling with this problem, we’re here to help you uncover the main reasons for late invoice payments and offer actionable solutions to address them.
- You Haven’t Agreed on Terms
You’d be surprised how many disputes and delayed payments occur simply because terms weren’t agreed upon beforehand. For example, imagine you’re a web designer who starts work without specifying when you’ll be paid or what the penalties for late payment are.
Solution:
- Get Everything in Writing: Before you begin any job, make sure to lay out your payment terms clearly and obtain your client’s signature.
- Be Specific: Your terms should cover when and how you’ll be paid and what will happen if the payment is delayed.
- Legal Advice: If you’re unsure about your terms, consult with legal professionals to ensure your agreements are enforceable.
- Your Invoice is Incorrect or Incomplete
No matter how straightforward you think invoicing is, one in three overdue invoices remains unpaid due to errors like incorrect amounts, wrong recipients, or missing payment instructions.
Solution:
- Use Invoicing Software: Many software options automatically include essential details and send reminders, minimising the chance of errors.
- Align Your Schedule: Find out when your clients normally pay their bills and send your invoices accordingly.
- You Haven’t Built Enough Rapport
Sometimes it’s not just about the money; it’s about the relationship. Clients are more likely to expedite payments when they have a strong rapport with you.
Solution:
- Personalise Interactions: Whether it’s a friendly email or a courtesy call, make the extra effort to connect with your clients.
- Friendly Reminders: If you’re a high-volume business, even your automated reminders can be crafted to be friendly and engaging.
- You Didn’t Deliver Quality Work
Business owners are more likely to pay on time if they are satisfied with the work done. Conversely, late payments can signal dissatisfaction.
Solution:
- Quality Assurance: Implement checks to ensure the product or service meets client expectations.
- Regular Feedback: Create a system to gather client feedback on your work to keep your standards high.
- You Don’t Follow Up Until Paid
Up to a staggering 90% of invoices get paid late. If you’re not following up, you’re part of this unfortunate statistic.
Solution:
- Automated Reminders: These should be sent before and after the invoice due date.
- Escalate if Necessary: If emails don’t work, proceed to phone calls, letters of demand, and as a last resort, legal action.
A proactive approach to invoicing is more than just best practice; it’s a necessity for maintaining a healthy cash flow. Whether it’s clarifying your terms, sending accurate invoices, building rapport, delivering quality work, or following up consistently—each step is critical.
If you’re tired of the awkwardness and stress of chasing late payments, why not consider outsourcing your accounts receivable? Admin Army’s first-stage credit control service could be the solution you need t o keep your cash flow positive without the hassle.
Don’t let late payments derail your business. Act now to get your invoicing process on track and keep that cash flowing!