Not everyone practices prompt payment.
According to accounting software Sage, 17% of all payments to SMEs in the UK are late. As a result, UK SMEs spend an average of 15 days a year chasing late payments.
That’s a lot of time wasted – not to mention the frustration.
What’s more, research from accounting software Intuit QuickBooks revealed that chasing late payments cost UK SMEs an average of $4,700 each year – a number too big to be disregarded by any business owner.
“Cash is oxygen for small businesses, and without it they cannot breathe. The combination of chasing invoices and bad payment practices means small businesses can run out of accessible cash,” said Chris Evans, VP and UK Country Manager at Intuit QuickBooks.
“This has a real impact on their ability to take on new work, pay suppliers, their employees, or themselves on time and can add unnecessary extra stress into their lives.”
Bottom line, you need to get paid on time – every time.
That’s why we’ve put together this guide. In it, we’ll take you through 20 tips for prompt payment, to help you get paid faster. But before we dive in, let’s quickly set the scene.
Prompt payment meaning: What is prompt payment?
Prompt payment is a commercial practice in which businesses agree to reasonable and fair payment terms and pay invoices on time according to these terms.
Unfortunately, many businesses agree to pay within the agreed period, but regularly pay late. And some companies attempt to change payment terms retroactively.
So, what can you do about it?
How to get paid faster: 20 tips to receive prompt payments
Ensuring that your business receives prompt payments is one of the best ways to ease cash flow issues.
If you have clients that always pay you late, here are 20 things you can do to increase your chances of getting paid on time.
1. Research the company before taking an order
When you consider the time, hassle, stress, and cash flow management issues that can arise from late payments, it’s worth considering whether taking on the new client is worth it.
So, before accepting an order from a new client, take the time to do your due diligence.
Look them up on Google and credit bureaus, ask for references, and listen to your gut. Make sure you feel comfortable that they’ll pay promptly.
As the 40th President of the United States, Ronald Reagan, said, “Trust, but verify.”
2. Require a contract
The simple practice of requiring a contract can go a long way in helping you receive prompt payments.
Contracts protect you and your clients, and make it easier to take legal action should there be a dispute in the future.
Just make sure that contracts are clear, precise, and that there’s no room for misinterpretation.
3. Get paid quick with a deposit
Requiring deposits before you begin work is a fantastic way to improve cash flow and help safeguard your business if a client doesn’t pay on time.
So, consider asking for a deposit for large orders or orders from new customers. Or you can require an upfront payment to cover the cost of materials or other expenses needed to complete the job.
4. Require payment upfront
If you like the idea of asking for a deposit, you could always require full payment upfront.
Of course, this practice may be more difficult in some industries than others. Still, in reality, it’s the only way to guarantee that clients will pay on time.
If you fear offending clients with this request, consider using it sparingly for clients who have bad credit or those who have previously not paid on time.
5. Communicate your prompt payment policy clearly
It doesn’t matter how trustworthy your client is if they don’t understand your payment terms.
The famous Irish playwright and activist George Bernard Shaw once said, “The single biggest problem in communication is the illusion that it has taken place.”
So, make your prompt payment terms and policy clear before starting the work.
Also, if you’re trading internationally, you need to take into account the language barrier. Take the time to clarify that everyone has the same expectations and is on the same page.
6. Offer discounts for early payments
Many businesses offer discounts for early payments.
At first, this might seem counterintuitive – after all, you’ll receive less money in the long run. However, when you consider the costs of chasing late payments and cash flow inefficiencies, incentivising clients with a discount may be an effective strategy.
For example, if you require prompt payment within 30 days, you could offer a 3 percent discount if the client pays within the first 14 days.
Typically, this would be written as “3/14 net 30” on an invoice. However, remember that communication is key, so be sure that your client understands the offer.
7. Consider late fees
Plenty of businesses charge late fees when clients don’t pay on time. And like everything in life, there are pros and cons to late fees.
For example, some believe that late fees incentivise clients to pay early. Others think that late fees sour business relationships.
What’s more, charging a late fee may legitimise the delay. As a result, a late fee could incentivise businesses to postpone payment to improve their cash flow.
Whatever you decide is best for your business, make sure to form a clear policy.
8. Provide many payment options
If you want to get paid on time, you need to make the payment process as easy as possible for your clients.
These days, there are so many different ways to pay. Thankfully, it’s easy to offer many payment options by using innovative online tools.
9. Use prompt payment terms
One of the best ways to get paid faster is to use prompt payment terms.
Although industries typically have standard payment term practices, there’s no rule that says you need to provide net 30 or net 60 payment terms.
Perhaps your clients would run for the hills if you proposed payment upfront, but maybe you could require payment within 7 days instead of 30.
Consider what payment terms are best for your business alongside industry expectations.
Also, if you have a client who always pays two weeks late, consider reducing your payment terms by two weeks to account for the delay.
10. Personalise your communications
An anonymous invoice isn’t exactly inviting.
So, take a few extra minutes to connect with your client in some way. You could include a thankyou card, add a personal note, or simply say “please” and “thank you.”
Whatever it is, take the time to remind your client that you appreciate your mutually beneficial relationship – it could improve your chances of getting paid on time.
11. Keep selling
When advising on presentation skills, the entrepreneur and author Guy Kawasaki said, “The goal is to provide inspiring information that moves people to action.”
This principle holds true when trying to increase your chances of prompt payment. Until the money is in your account, you should continue to remind clients of the value they’re getting.
So, don’t just send a basic invoice.
Instead, take the time to gently highlight your product or service’s benefits in invoices, emails, or other communications.
12. Stay in touch
Don’t underestimate the power of a healthy relationship.
Cultivating a genuine relationship with your clients is well worth the effort. If you’re not sure where to begin, keep it simple and give before you get.
For example, you could show that you were thinking of your client by forwarding an article that you know she’d love to read.
Make an effort to go beyond the usual business formalities.
13. Invoice promptly
If you want to receive on-time payments, you need to send invoices promptly.
When you’re slow to provide the invoice, you set a precedent for slow payment. So, be proactive and set the tone by sending your invoice as soon as it’s appropriate to do so.
14. Be kind, but firm
It doesn’t matter if a client never pays you on time or is 100 days overdue – always be kind.
As the educator Laurence J. Peter once said, “Speak when you’re angry, and you’ll make the best speech you’ll ever regret.”
Still, don’t be afraid to be firm in your messages outlining your prompt payment terms and the consequences of late payments.
15. Stay organised
When managing many clients, it can be tricky to keep track of invoices, payment terms, each clients’ propensity to pay on time, and other special circumstances.
Although accounting software like Xero has made things easier, ultimately, it’s your responsibility to manage your receivables and ensure you get paid on time.
16. Track and review payment patterns
When you know who’s paid on time and who hasn’t, you can follow up appropriately with each client.
Plus, keeping track of payments makes it easier to spot changes that might signal a potential late payment in the future.
For example, when a client always pays invoices on receipt suddenly starts to pay later each month, it could be a sign of financial distress.
As they say, “Forewarned is forearmed.”
17. Be flexible
The organisational consultant Warren Bennis said, “Trust is the lubrication that makes it possible for organizations to work.”
So, if you have a long-standing client who is suddenly having cash flow issues, you may decide to provide more generous payment terms. Not only will this help your client, it will also maintain the good relationship you’ve built.
Although you’d be getting paid later, you could prepare in advance and still know that you’ll receive prompt payment when it’s due.
18. Stop working
If you’re worried about a client not paying on time, you could make it clear that you’ll pause work if payments are late and only begin again when you receive payment.
Again, if you decide to use this tactic, make sure to communicate the consequences to your clients from the outset.
19. Refuse new orders from overdue accounts
If a client never pays on time, you could consider refusing new orders until all outstanding invoices are paid.
After all, if the client needs what you’re supplying, they’ll likely feel incentivised to settle all unprocessed payables.
20. Re-evaluate your relationship with late payers
If you’re fed up with a client who never pays on time, you may want to re-evaluate your relationship.
Cash flow is vitally important to SMEs, so consider seeking out new business that doesn’t threaten your company’s stability.
What is the prompt payment act?
If all else fails and a client owes you money, you can take legal action. Most countries have laws surrounding late payments. For example, the UK’s rules on late payments empower suppliers to retrieve money owed.
If payment terms aren’t agreed upon in the UK, the law says payments are late 30 days after the customer received the invoice or the goods or services are delivered.
Make sure to understand your country’s laws, so you’re aware of your options to recover late payments.
Summary: how to get paid on time
Prompt payments are vital to your business’s success.
When clients don’t pay on time, your business could spend many days and thousands of dollars each year chasing them up.
Plus, late payments can create cash flow problems, which can make it challenging to order new materials, pay employees, or even maintain overheads.
If you’re want to know how to get paid faster, here are 20 prompt payment tips:
- Research a new client before taking an order
- Always require a contract
- Get paid quickly by asking for a deposit
- Require payment upfront
- Communicate your prompt payment policy clearly
- Offer discounts for early payments
- Consider charging late payment fees
- Provide many payment options with a dedicated service such as Statrys
- Shorten your payment terms
- Personalise your communications
- Keep reminding clients of the value you provide
- Stay in touch with clients and continue to build relationships
- Always invoice promptly
- Always be kind, but also be firm
- Keep on top of invoicing
- Track payments to spot potential issues early
- Consider offering generous payment terms to good clients
- Stop work if a client doesn’t pay on time
- Don’t take new orders from clients with overdue invoices
- Re-evaluate your relationship with clients who often pay late
It can be challenging to ensure your business is paid on time. However, working to increase prompt payments can help to improve cash flow and stabilise your business foundations.