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.
Know who you're doing business with
Before providing products or services to another business for the first time, it's important to identify any risks.
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.
Doing some fact-checking upfront reduces the risk of non-payment later.
Be open, honest and professional
One of the best strategies to ensure payment is to establish clear, professional expectations from the start.
Set the tone with written contracts and transparent payment terms. Walk your customers through the entire sales process, including the:
- agreed scope of work
- signing of a contract
- terms and conditions
- payment terms and consequences for late payment.
Clear communication early builds a solid foundation for a better working relationship.
Quote well and quote fast
High quality, well-structured quotes can make a big difference to whether you get paid on time. Aim to:
- include a detailed, itemised breakdown of the costs involved.
- consider shorter payment terms, such as 7-day terms where possible
- request 50% up front and 50% on completion for any project-based work
- issue invoices immediately after completing a job.
Incentivise prompt payment
Offering small incentives or penalties can encourage customers to pay on time. For example:
- a 2% discount for early payment
- a late fee, such as a 2.5% increase for every 7 days an invoice remains unpaid.
Many cloud-based invoicing tools make it easy to apply these options automatically.
Automate the process
Paperwork can be one of the most challenging aspects of running a small business, but automating invoicing can save time and reduce late payments.
By using accounting or invoicing software, you can:
- set up automated email reminders
- allow customers to click and pay directly from an invoice
- track outstanding payments in real time.
Automation not only streamlines the process but also gives you a clear picture of how much money is still due, helping you stay accountable and proactive in managing your cash flow.
Want more tips? Read our article about staying on top of your cash flow.
You can also search our online library for more practical resources on a range of topics to help you build your skills and make everyday business decisions with confidence.