Receiving timely payment from your customers is crucial to keeping your business finances in order and maintaining healthy cash flow in your business. Many business owners think receiving payment quickly is solely in the hands of the customer. But there are a number of things you can do to ensure you get paid faster.
In this article, we’ll share how to get paid faster through 11 strategies. But first, we’ll take a look at the importance of getting paid as quickly as possible.
How Getting Paid Faster Affects Cash Flow
Let’s say you’ve just completed a record sales month. Spirits are high around the office, and you want to reward your team for their hard work. You decide to surprise your team by having a nice lunch catered in.
However, when your assistant goes to pay for the order, your business’s debit card is declined. Puzzled, you check your bank account balance, only to find there’s only a few hundred dollars in the account.
Your first thought is there must be fraudulent activity on the account, but a quick review shows nothing amiss—except for the low balance. What happened?
You call your bookkeeper, and she explains to you that—although sales were outstanding this past month—you’ve only collected about 15% of the amount due from your customers. The rest is within the current collection period, so it’s not that you have a collections problem. The money just hasn’t come in yet.
In the meantime, you’ve incurred additional payroll expenses in the form of commissions paid to your sales team and the extra hours your staff put in to deliver to your customers.
In short, your excellent sales month has helped create a cash flow shortfall.
Unfortunately, businesses that look successful on paper—even those that show an excellent profit margin—can experience this exact situation. In the worst-case scenarios, a profitable business with good sales can go out of business—all because they don’t have adequate cash flow.
There are a number of elements that impact your business’s cash flow, but getting paid quickly is one of the best ways to improve cash flow in your business.
Fortunately, there are some easy steps you can take to get your invoices paid faster, so you won’t experience this nerve-wracking scenario in your business.
How to Get Paid Faster in 11 Steps
We offer the following 11 steps to get paid faster in no particular order. Some of these steps will be easy for you to implement in your business. Others might take some time and effort to get your customers to adopt them. A few might be uncomfortable.
We recommend starting with the easiest and most comfortable steps first. If you have established relationships with customers already, you probably won’t want to try to implement all 11 steps at once—otherwise, you risk alienating your customers, and that won’t help you get paid faster at all.
1. Get Paid Upfront
This might seem impossible depending on your industry or customer relationships, but more and more businesses are adopting an upfront payment model. When you get paid upfront, you have the cash in hand to cover the costs related to delivering your product or service (meaning you won’t experience the problem in our example above). You also eliminate the risk of a customer defaulting on their payment. And if you accept credit card or PayPal payments, there’s little risk to the customer to pay upfront.
You don’t have to demand upfront payment in full (although there’s nothing wrong with doing so). Start with requiring a deposit or a retainer to ease your customers into this new way of doing business with you. If you let your customers know you will be implementing this payment requirement in advance—three months is good—you’re not likely to get much pushback.
A word of caution, though: You must keep in mind that any money your customers pay before you deliver your product or service is a liability to your business. If the job or the order falls through, you’ll have to refund the customer for anything that has not been delivered. As such, we recommend putting any deposit or retainer money into a separate bank account and then “dripping” it into your main account as you “earn” it (by working on the project or incurring expenses for it).
2. Know Your Customers’ Accounts Payable Protocols
Knowing your customers’ accounts payable protocols is especially important if you sell to other businesses or if you do business with government agencies. You want to make sure your invoices include all the information necessary for you to get paid properly from these entities.
You must also ensure your invoices are being sent to the correct address and to the attention of the right person. The last thing you want is for your invoice to bounce around in a departmental mail envelope for several days—or weeks—before it enters your customer’s accounts payable process.
Keep in mind that knowing and honoring your customers’ accounts payable protocols does not mean your customer sets the payment terms for your invoices. It simply means that you ensure you are doing everything possible to make it easy for your customer to pay you.
3. Set Your Payment Terms
This might seem to be in conflict with the previous tip, but it’s not. You can know and abide by your customers’ accounts payable protocols and set forth your own payment terms.
If a customer tells you they typically pay in 60 days, and you want to be paid in 30 days, it’s okay for you to insist that your customer abides by your payment terms. Just know you might not always get the customer to agree. In that case, you must decide if working with this customer is a good fit for your business. Weigh the impact of waiting for payment against the profitability of the relationship with the customer, and decide accordingly.
4. Include a Due Date on Your Invoices
You should include a due date on every invoice, even if you also include payment terms on it.
For example, let’s say you invoice your customer on May 1, and your invoice terms are Net 30. In addition to the invoice date and the payment terms, also include a due date of May 31 on the invoice. This makes it easier for the person entering your invoice into the accounts payable process to do their job, meaning your invoice is likely to get paid faster.
Many businesses will simply include payment terms of “due upon receipt” on their invoices, thinking that will help them get paid quickly. The opposite is actually true. Many customers will enter an invoice with “due upon receipt” on it as due in 30 days. If you want to get paid faster, use terms of Net 10 or Net 15—and include the due date as well.
5. Invoice Regularly
Invoicing on a regular basis helps keep your cash flow on track. It also helps you get paid faster.
A customer who is happy with your product or service is more likely to pay you faster than one who is only lukewarm about it. Let’s say you finish a project on May 20. Your customer is happy with your work and you are at the top of their mind. However, you don’t get around to invoicing the customer until June 15, nearly a month later.
The customer might still be happy with the work you did, but they’re not ecstatic like they were when you first completed the project. To make matters worse, you’re likely no longer at the top of their mind, either. And the customer might have had other expenses come up in the intervening 26 days that have laid claim to their cash on hand. All this means you could have to wait up to another month, or more, to get paid for the work you did.
Invoice your customers as soon as possible after completing a project or delivering an order. Even the busiest entrepreneur can carve out an hour a week to keep their invoicing up to date, and your cash flow will be the direct beneficiary of this practice. If you’re especially strapped for time, consider invoicing software to help automate the process.
6. Keep Your Accounts Receivable Current
When you’re doing your weekly invoicing, also carve out some time to review your accounts receivable aging report. Address any invoices that have gone past due quickly and courteously. Just like your customers are more likely to pay you quickly if you invoice soon after completing work for them, they’re also likely to take care of any past-due invoices if you ask them before too much time has passed.
7. Use an Engagement Letter
An engagement letter or a contract spells out the terms of your relationship with your customers. In addition to the products or services you will be delivering, your engagement letter/contract should also include payment terms and details of what will happen if there is a disagreement about payment.
You can point back to the engagement letter or contract if a customer is slow to pay. In the worst-case scenario, you can also use this document as part of a collections process against your customer. Even if it never comes to that, your engagement letter or contract is another way to ensure your customer is clear about your payment terms—helping you get paid faster.
8. Accept Electronic Payments and Use Payment Links
Many small business owners are hesitant to accept credit cards or other electronic payments due to the associated fees. However, accepting electronic payments can dramatically decrease the amount of time it takes you to get paid.
Include payment links on your invoices to make it easy for your customer to click and pay your invoices. If you are concerned about merchant services fees, consider raising your prices across the board to offset the cost. This is more palatable to customers than an electronic payment “convenience fee,” and you can always offer a discount if you really want to encourage customers to pay by check or cash. Just make sure that by doing so you aren’t slowing down your collection process again.
9. Offer Early Payment Discounts
Offering early payment discounts not only gets you paid faster, but it also reduces the risk of customers defaulting on payments and increases customer goodwill. There are two things to keep in mind before offering early payment discounts to get paid faster:
- Know your customers. If your customers are cash-strapped themselves, or if they just aren’t inclined to take advantage of early payment discounts, offering these discounts will not help you get paid faster.
- Know your profit margin. Any discount you offer cuts into your own profit margin. You must make sure offering early payment discounts doesn’t cut into your profitability too deeply and that the improved cash flow is worth the hit to your bottom line.
10. Don’t Work for Free
Unfortunately, professionals who work on a fixed-price basis and businesses with a subscription-based model can sometimes find themselves in a position where they are providing services to customers whose accounts are in arrears.
If your customer owes you money, stop doing work for them—or shut off their service—until you get paid. When your customer realizes you won’t continue to provide services unless you are paid on time, you are more likely to get paid faster.
11. Forego Snail Mail
As much as possible—meaning, in keeping with your customers’ accounts payable protocols—avoid mailing invoices and opt for electronic delivery instead.
The benefits of electronic delivery of your invoices are numerous:
- Electronic delivery can be scheduled, letting you batch your invoicing activities for greater efficiency.
- Electronic invoices can’t get “lost in the mail.”
- You know exactly who is receiving your invoices, based on the email address the invoice is sent to.
- You can check on the status of your invoice at any time. Most invoicing software programs will show you the status of the invoice—from Sent to Viewed to Paid.
The Bottom Line
Learning how to get paid quickly is essential to your business’s health. Most customers are happy to pay you as fast as you like. You only have to make it easy for them.
If you need guidance on how to implement any of the 11 steps in this article, reach out to your accountant or bookkeeper. Not only will they be able to help you implement the policies needed to speed up your customers’ payments and set up your invoicing software accordingly, but they will also be able to run calculations to show you the impact of these steps on your cash flow. Having these numbers in hand will help you stand firm in the unlikely event you get pushback from your customers.
And, if you aren’t sure how to include the above tips into your invoices, check out our guide on how to create an invoice (with templates included).
Billie Anne Grigg
Billie Anne Grigg is a contributing writer for Fundera.
Billie Anne has been a bookkeeper since before the turn of the century. She is a QuickBooks Online ProAdvisor, LivePlan Expert Advisor, FreshBooks Certified Beancounter, and a Mastery Level Certified Profit First Professional. She is also a guide for the Profit First Professionals organization.
Billie Anne started Pocket Protector Bookkeeping in 2012 to provide an excellent virtual bookkeeping and managerial accounting solution for small businesses that cannot yet justify employing a full-time, in-house bookkeeping staff.