Cash-flow is vital to your small business, so getting paid quickly is essential.
One of the most vital parts of running a small business is getting paid on time. Cash-flow is everything, and prompt payments are a lifeline. So, what do you do when clients refuse to pay, or are slow to tie up invoices? These four simple tips should prevent unwanted delays and difficult customers from damaging your business.
1. Write a contract
Even if your client’s a friend, don’t rely on a verbal agreement. An official contract prevents misunderstandings. It lays out the work you’ve both agreed on, when and how you’ll be paid, and what will happen if there are any disagreements.
Without this, it’s much easier for a client to make their own assumptions about pay, and challenge what you’d agreed on.
2. Take a deposit upfront
Take away the risk of a new client challenging your invoice, or avoiding payment, by taking some money before you start any work. It shows clients you’re running a professional business that wants to protect its interests, but also limits the risks involved in taking on new clients.
Deposits are effective in two ways. The client’s less likely to pull out of the project because they’ve already made a payment. And, even if the worst happens and they don’t pay what they owe, you still have something for the work you’ve done – and ideally enough to cover your costs.
Depending on the industry you’re in, a 50% deposit is the most common amount. However, for especially large, expensive and lengthy projects, 20-30% will be significant enough without startling your customer.
3. Send your invoice quickly
When it comes to getting paid promptly, set a good example by sending your invoice out as soon as the work is done.
In most cases, a customer plans their payments – especially substantial ones – well in advance. They put money aside in preparation for the work being completed. But the longer they wait for your invoice, the more likely they are to forget about your money and spend it elsewhere.
This is especially common when you’re invoicing customers who are paying out for various other work at the same time. If you’re a plumber for example, and you delay your invoice, all of a sudden it’s in a busy queue behind an electrician and a plasterer.
4. Use penalty clauses
Nothing gets a client to pay promptly like a payment penalty. Try introducing a flat fee which kicks in once a customer misses their payment deadline. Or you could charge them interest on the overdue amount and add it to their charges.
Make sure these conditions are explained in full from the start, then customers can’t complain if you impose them. But if they have a good reason for not paying on time, try and reach an agreement instead of adding extra charges – repeat business is worth far more than a bit of interest on a delayed payment.
Are you a small business looking for advice on any other subject? Check out our other guides – they’re packed with practical tips that will save you time and money.