For small business owners, having invoices paid late or not at all can result in falling behind on rent, not paying staff on time, ordering inadequate stock or, in the worst-case scenario, closing their business.
There are a number of steps small business owners can take to not only reduce unpaid invoices but get paid faster.
Court Sayer-Roberts, an independent advisor with Service NSW Business Connect, has experience running his own business. He also helped businesses recover from drought, bushfires and COVID-19 in his former role at the Rural Financial Counselling Service New South Wales.
Here is Court’s advice on how to reduce unpaid invoices, get paid faster and improve your small business’s cash flow.
Know who you're doing business with
When providing products or services to another business for the first time, Court advises first identifying the risk.
'When you've been engaged to provide a service, do some fact checking around who you're about to do business with. Check the credit worthiness of new clients before setting them up on your books.'
At a minimum, search the Australian Business Register to confirm the business has a valid ABN.
If you’ve done this but still have concerns, you can:
- obtain a credit check
- ask for references
- request a company report from the Australian Securities and Investments Commission (ASIC)
- conduct an online search for the business and, if relevant, its directors.
Be open, honest and professional
'One of the first things you should to do protect yourself from non-payment is to have written contracts in place and clear payment terms,' Court says.
According to Court, setting a professional tone with customers from the outset will go a long way to getting paid on time.
You can do this by explaining the entire sales process with your customers, including the:
- agreed scope of work
- signing of a contract
- terms and conditions
- payment terms and consequences for late payment.
'Setting the groundwork in that first meeting will establish the foundation for a better working relationship,' Court says.
Quote well and quote fast
Court has seen firsthand the positive impact of issuing high-quality, well-structured quotes to securing prompt payment.
He recommends following 3 simple steps when it comes to good quoting:
- Include a detailed, itemised breakdown of the costs involved.
- Consider the best payment terms for your business. When possible, have 7-day payment terms. Court also suggests asking for 50% upfront and 50% upon completion to improve cash flow if you're doing project-based work.
- Send invoices as soon as possible after you've completed the work. 'The day you complete a job is the day you should issue the invoice', Court advises.
Incentivise prompt payment
According to Court, offering a 2% discount could improve your cash flow by 10%.
He says, 'You might offer a small discount to encourage customers to pay promptly. You can also introduce penalties for late payments – for example, a 2.5% increase of the quote for every 7 days it isn't paid.'
Court notes that cloud-based software can help you build incentives into your invoicing.
Automate the process
Paperwork is one of the most challenging parts of running a small business. Court explains that beyond saving you time, automated invoicing can also help reduce late payments and make accounting easier.
By invoicing through the cloud, you can set up automated emails for payment reminders. When customers get these emails, they can simply click and pay. Court says these automated processes can reduce late payments by up to 30%.
Also, if you can transfer your business model into accounting software, Court notes, 'it makes the entire process seamless.'
'If they can do this, business owners look forward to invoicing, especially when they can tell you how much money is yet to come into their business. It’s very rewarding because they’re on the path of taking full responsibility and accountability of their business,’ Court says.
Want to learn more about how to reduce late payments? Find an independent advisor to discuss your unique business needs. You can also attend events and access online resources for practical tips and industry guidance.