To help you tackle late invoice payments and the uncomfortable situation altogether, RJF Accounting has created this blog to help you!
CONTRACTS & PAYMENT TERMS
Having a contract and clear payment terms for every client is paramount to avoid any ambiguity regarding payments. Here in the UK, there is a legal obligation to make payment within 30 days of receiving the goods or services unless you have an agreed payment term.
The regulations outline that unless a fixed payment term is agreed upon in advance, all payments must be made within 30 days or face interest and penalties. This is important when dealing with clients as if you sign their contract and payment terms, you agree to waiver the 30 days, and in some cases, this could mean waiting up to 90 days or more for payment.
Having your payment terms and contract in place allows you to ensure that you are paid on time, impose any charges and interest where you are not, and let you and your customers know where things stand from day one.
CREATE A SIMPLE PAYMENT PROCESS
The harder you make it for anyone to do something, the less likely they are to do it or, in the case of making payments – the less likely it is to be paid on time. The less friction there is in the payment method, the better, so offer different types where possible such as:
- Bank transfers
- Card payments
- Direct debit
- Standing order
Systems such as Go Cardless allow for direct debits to be implemented relatively simply, and online payment processing via Stripe or PayPal provides credit and debit card payments. Be aware, however, to choose your payment providers carefully as each will have fees and payment terms which could hinder your business more than others.
Having a date for invoicing or a fixed invoice process can help reduce time and friction for you and your clients. Standardising your invoicing process can help reduce confusion about when payments are due. For instance, if you have regular work with a client, it could be a good idea to pick a date for the invoice to be sent, such as the 1st or the 28th.
Taking one-off work could be a good idea to take deposits or payments in advance to help with reducing late payments. Having your process laid out and included in your contract ensures that both the customer and yourself know when and how the payment will be made.
Sending a polite reminder that an invoice due date is approaching or has passed is advisable. Everyone forgets things, or things get put to one side and forgotten about from time to time. If you use an automated invoicing system such as FreeAgent or Xero, you can set up an automated reminder system that can send friendly reminders before due date and at a set interval after the payment due date.
Equally, sending clients a thank you or payment received email or receipt can help build rapport with them, especially if it’s a thank you email for early payment! Again if your using online accounting software such as FreeAgent or Xero, this can also be automated.
WORK WITH YOUR CLIENTS
Sometimes a little understanding of where your clients are can go a long way in building a long-term relationship and reduce friction. For instance, if your client is a new business, their cash flow could be all over the place, and they might need a slight adjustment to the payment terms, or if they are moving offices, could the payment be made a few days after they have settled back in?
This is not to say that you don’t need to enforce your payment terms, but a little bit of understanding can go a long way with longer-term relationships with clients.