As a successful small biz owner, you're brilliant at what you do. You're on top of your craft and often go above and beyond to impress your clients and customers. Yet when it comes to billing your clients and tracking those expenses, it's so much harder to feel the same passion.
Rest assured, it's not uncommon to put off your accounting. It's hard to anticipate all the administrative aspects involved in being a small business owner; the primary one being how to get paid on time. There is indeed an art to mastering one's billing and we're happily sharing the secrets to success.
Add these simple strategies to your billing routine and you'll start feeling the rewards immediately (such as prompt payment):
1. Set expectations from day one
Don't hesitate to sign a contract with new clients. In fact, most clients expect it. Taking some time upfront to walk your client through all the key deliverables and payment terms can save everyone some headaches and misunderstandings down the road. It's also at this point that you can cover your late payment policies and these should be written into the contract.
2. Know the person who pays you
If you don't already know the person who signs the checks or processes payments, you should. If your client is a fellow small business, chances are the business owner processes payments. If your client is a mid to large sized company, then it's most likely someone in the accounting department or financial controller.
With any new client, ask upfront for the name, phone number, and email of the person who will be processing your invoice. This will come in handy when you need to address any outstanding invoice in the future.
3. Your invoice terms matter
Maybe you downloaded an invoice template from the web and never gave any thought to the language used to describe your payment terms. However, you may be surprised to learn just how much those little words at the bottom of your invoice can determine how quickly you get paid.When we conducted a study of FreshBooks users' payment terms, we determined that phrasing on an invoice could actually lead to faster payments. Here's what we found:
- Be polite: Adding a simple phrase like 'thank you for your business' or 'please pay your invoice within' increases the chance an invoice will be paid by 5 percent.
- Stick with plain English: Jargon like 'Net 30' is less effective than clear language like '30 days.'
- Apply late payment fees: Including a message about interest charged on late payment results in two things. It gets you paid slower, but also increases the percentage of invoices that will get paid.
To optimize your language, try a simple, courteous message like "Thank you, we really appreciate your business. Please send payment within 21 days of receiving this invoice."
4. Invoice early and often
It must be said: the sooner you invoice your clients, the sooner they pay you. Each time you are due a payment (usually on a deliverable), send off an invoice. Additionally, breaking down big fees into more sizable chunks (for example, two payments of $5,000 rather than one lump sum of $10,000) may make it easier for your clients to pay you promptly. If you're invoicing for a partial payment, make sure this is clearly stated on the invoice to avoid any confusion.
5. Itemize your invoices
Be as clear and specific as possible on each invoice. Itemizing your invoices may take a little more time, but can save you from time-consuming misunderstandings in the long run over what has been billed for and what still needs to be covered. If a client does not understand what they are being billed for, they're less likely to sign off on the invoice.
Think of it this way. Nobody likes paying money for no reason, and the invoice is a great opportunity to show your client just how much value they're getting for your services. For example, instead of putting 'website' in the description, use something more specific such as "10 pages of HTML design and development for product pages, including contact form and site map."
6. Follow up on outstanding payments
In a perfect world, all invoices would be paid in minutes, or at least days. Yet invoices can typically take anywhere from three to twelve weeks to get paid - and that schedule can be tough on a small business' cash flow. That's why it's important to hone your follow-up strategy.
Sometimes a quick email or call is all that's needed. Or simply set up an automatic reminder from your billing solution. You don't want to nag your clients to exhaustion, but sending a reminder on the due date and once per week until payment is received is more than reasonable.
7. Last resort: letters and legal
What happens when a client ignores your polite reminders? When things get really bad, small claims court is an option -- but it's most likely not worth the effort and expense. It can be just as effective to send a formal letter after your casual prompts have gone unanswered. If that fails, consult a lawyer and have them send a letter on your behalf. That's usually enough to secure a response.
Of course, it's rare that a client situation will ever require such drastic measures. By developing a strong client relationship, communicating throughout, and heading off potential issues early, you can improve your chances of getting paid on time. These strategies will help you spend less time chasing customers, so you can focus your resources on your growing your business.