How to Get Paid On Time

For small business owners and consultants, one of the most frustrating facts is that you simply can’t guarantee getting paid by your clients on time. Having past due accounts receivables can back up your payments to vendors and can wreck getting your personal payments in on time. So how can you ensure getting payments on time to keep cash flowing?

Give Clients a Reason to Pay Early

One solution for getting invoices paid on time or even early is to offer incentive for early payment. Offer a discount on invoices if they are paid within five or 10 days of being issued. This might not mean much to clients whose invoices are just a few hundred dollars, but for those who you bill several thousand dollars monthly, it can mean a sizeable savings.

And while you’re taking a cut in giving the discount, sometimes it’s worth it just to have money coming in on time. Experiment with offering the discount and see if it improves cash flow.

Give Clients a Reason Not to Pay Late

The flip side to the discount solution is to charge a late fee for invoices that are paid past their due date. This can work if you have one or more clients who consistently ignore your due date, clogging up your own payment schedule.

Look at an incremental late fee structure, with, for example, a 5% increase on the amount due if the payment is 15 days late, 10% increase on invoices 30 days late, 15% increase for those 45 or more days late, et cetera. I guarantee you’ll quickly see a reduction in late payments once your clients realize how serious you are about due dates for invoices.

Remain Professional

I know for a lot of solopreneurs, there’s no accounting department to send nastygrams for late invoices. As the owner of your business, you may be in close contact with your clients, and you’re probably the one sending the invoices and reminders.

Even if you consider yourself friendly with your clients, be strict about payments. After all, you’re not friends; this is business, and your business has to make money to exist. Don’t be afraid to point out late payments. Sometimes it’s just a matter of your client contact talking to his accounting department to get the check signed.

Use professional invoices if you expect to be treated professionally. Word has free invoice templates if you’re not using a program like QuickBooks, so there’s no excuse for having an invoice with your company logo and contact information, itemized expenses and due date.

When to Be Lenient

Now, I’m not suggesting you rule your accounts receivable with an iron fist. There are times when you should be more flexible about taking payments late.

If your client has fallen upon hard times and speaks to you about his own cash flow, consider working out a payment plan. This ensures that you get paid, even if it’s a trickle at a time, and holds your client to the trust covenant you’ve built up.

If you believe forcing the issue will lose you the client (and you don’t want to lose him), be more flexible. There’s no sense in burning bridges over a payment that’s five days past due, even if you’re desperate for cash. Use your discretion on a case by case basis.

If this is your client’s first invoice, cut him some slack. There are two sides to every invoicing situation: while you might require payment due within 15 days of the invoice being sent, your client may have a 30 day net policy on payment. Realize that you will have to come to a compromise simply because you can’t force all your clients to follow your own payment schedule.

Make it as easy as possible for clients to pay. They should be able to pay by check or credit card, and more and more people are using Paypal as a professional payment option, so make that a possibility as well. You’ll soon see faster turnarounds on your invoice, which makes for a happy business owner.