To continually receive payment for services/ products upfront would be ideal, but unfortunately not always practical especially with business to business transactions. Slow paying debtors can have a huge effect on your cash flow and can interrupt your business when you don’t have the financial room to move forward.
Here are some simple tips to encourage debtors to pay on time:
Perform a credit check
This can be as simple as checking with another supplier that does business with your potential customer to see that their invoices are paid on time; however larger jobs should have signed contracts completed prior to the commencement of work. These should include confirmation that the applicant has read and understood all terms and conditions and agrees to abide by them, details of all owners in the business and at least 3 trade credit references.
The longer you wait to raise the invoice, the longer you wait for payment. Invoice same day or within the week at the latest. Ensure you have the contact information of the bookkeeper/ financial officer and know where to send the invoice and follow-ups/reminders. Include any purchase order numbers or other required details to avoid delays in processing. Your terms should be clearly defined on your invoice.
Automate/ systemise your collection and follow-up process
Create in-house systems to make it easy for customers to pay you and make it easy for yourself to remind them when. Even better, set up automations to save you time and hassles. For example, Xero has an online invoicing feature including a “pay now” button for simple credit card payments. Using add-on programs such as Debtor Daddy will allow you to schedule and automate email reminders prior to the due date and when overdue.
Reward prompt payments
While we shy away from using discounts to gain business, offering them as a reward for prompt payment can encourage debtors to pay on time. However, be sure to stand by your terms and do not offer the discount if the payment is even 1 day late as it sets a bad precedent.