At Geneva Capital, our goal is to get your invoices paid as fast as possible. While the fastest way to get an invoice paid is by using Invoice Financing, we’d be in remiss if we didn’t mention all the other ways you can encourage your customers to pay on time.
After all, 30-day payment terms are an obsolete hangover from the days of snail mail and paying by cheque. There’s no reason, other than being cash poor, that your clients can’t pay you immediately. However, they may still be stuck in the dark ages, and need a little prodding in order to get them to realize they have the power to pay to immediately.
We’ve compiled a list of tactics you can implement in order to help change the minds of those customers who think 30-day payment terms are still the norm.
Ready? Let’s go!
Ask your customer what they require on your invoices.
It takes some time initially to ask these queries, but you can save time if you don’t have to re-submit the invoice in order to correct some details.
Questions you could ask your customer include:
Do you need a purchase order (PO) number, or is an invoice number enough?
Do you need a detailed breakdown of services, or is a general description enough?
Who must I address the invoice to? What is the email address I should send the invoice to?
Make it easier to pay you
There’s nothing wrong with asking customers to pay you via bank deposit, but some customers may be more used to paying via a credit/debit card. You can offer this using a cloud-based accounting service such as Xero, or you could set yourself up with an electronic payment gateway, through a payment provider.
If you use this option, you will have the ability to take credit and debit card information over the phone. You could just call up your customer, ask if they have their credit card handy, and take payment right there on the phone call! Easy!
Make sure you have your bank account details on every invoice and statement you send so they know where to pay. You can also add a ink when collecting electronic payment and emailing invoices to make it even easier for customers to use their credit cards.
Keep talking to your debtors
What if the only reason that your customer hasn’t paid you is that they’ve forgotten, in the midst of all the other things they have going on in their life? Even if you can’t take payment over the phone, as suggested in the previous item, you can still call them up to remind them to pay the invoice.
If you do this a lot, your customer could start ignoring your calls, so a good tip is to take an indirect route- start the phone call with a personal question, such as “how’s the boat?” or similar. Once you’ve greased the social wheels, make a polite yet direct request for them to pay you:
“Hey, I know you’re busy, but that invoice I sent through to you is due tomorrow, and it would really help me out if that was paid right away. Can I count on you to pay the invoice tomorrow?”
We’ve italicized that because it’s the essential part of the sentence. You shouldn’t say it with any particular emphasis.
Use cloud-based accounting services
If you’re a small operation, you may have found that you’ve been able to get away with creating invoices in a spreadsheet. However, cloud-based accounting software offers many advantages, such as:
A better invoice templating system- no more accidentally overwriting your template excel spreadsheet. Greatly reduces manual data entry.
Notifications when your customer opens the invoice.
Automated invoice reminders- you can let customers know when an invoice is about to be due or is overdue.
Enhanced security- unlike sending a .pdf, cloud-based invoicing software can protect your invoices from unauthorized changes.
Bulk invoicing- you can send all your invoices at the same time, or compile multiple invoices into one document, so your customer can pay the full amount in one go.
Mobile access to invoicing.
“Pay now” features, allowing customers to make an electronic payment using their debit or credit card, rather than having to make a bank transfer.
Oncharging billable expenses.
Popular cloud-based accounting software in New Zealand includes Xero, MYOB, and ReckonOne.
Invoice on time
If you want your client to pay on time, be sure you are sending your invoice on time. By sending a late invoice, or any form of late correspondence, shows that punctuality is not among your concerns.
If timeliness doesn’t matter to you, why should it matter to your clients?
Many accounting software packages have an automatic invoicing feature. Here is how you can set up a repeating invoice in Xero, and here is how you do it in MYOB.
Have a great relationship with your client
Waiters in countries where tipping is expected commonly do things like draw a smiley face on the check, or give their customers an unexpected treat when delivering the bill. Why? Because this has been scientifically proven to increase tip size – According to a study by Cornell University, waiters who left a small piece of chocolate with the bill had an 18% increase in the average size of their tips versus waiters who left no chocolate. Diner reciprocated the kindness.
This proves that tipping is as much of a psychological phenomenon as it is an economic one, and that means that, even in New Zealand, where we don’t tip, you can use this to your advantage. All you need to do is figure out how to make an electronic version of a small chocolate candy.
When you email your client your invoice, consider adding a quick message, thanking them for their business and, if you can, praising them somehow. Maybe you could make a short video, summarizing the work you’ve done for them, using screen recording software or a webcam.
Even adding a please and thank-you has been shown to increase the percentage of invoices paid by more than five percent.
When you provide the unexpected treat, your clients may feel compelled to reciprocate by paying your invoice on time.
Try it out, and see if it works for you, and check out this video from Robert Cialdini, the United States’ foremost professor of Marketing Psychology, illustrating this concept.
Punish and Reward
Do you have a prompt payment discount on your electricity bill? Maybe you could incentivise customers to pay you early by offering a 1 to 2 percent discount if the invoice is paid within a specific time frame. Make sure this is written clearly, right on the invoice, so your customer is motivated to react to the offer.
It’s a way of saying thank you for making your payment a priority, and not relegating you to the bottom of the to-pay invoice pile.
You can also provide another type of incentive for your customers: avoiding a penalty.
In your initial customer contract, be sure to include that invoices paid late will incur a 2-percent interest fee charged per month on late payments. Then, when you deliver the invoice, remind your customer about the penalty for paying late.
Keep in mind that a late payment fee could backfire on you- the customer might see it as “hey, for only an extra 1%, I can hold off on paying the invoice another month!”
Ensure your terms and conditions of payment are clearly displayed, sent to each customer when they first start to trade with you and easily accessible to ensure you can enforce these penalties efficiently.
Change your invoicing model
This is particularly useful if you provide a service delivered immediately, but your customer requires you to wait thirty days before they pay an invoice. Tell the customer that they have the option to switch to a retainer model, where they can pay you a certain amount of money each month, and in return can get a certain amount of work from you- that way, they can set up an automatic payment and not have to worry about paying your invoice, and not have to look over the bill to make sure everything’s being charged correctly.
Plus, no more tallying hours or filling out invoices manually. You’ve eliminated a manual process from your business, and thus become more efficient.
Alternatively, you can change your terms so that 50% of the invoice is paid up-front. This would not necessarily cause your client to pay the remaining 50% faster, but it means that you are waiting on half as much money.
However, do be aware if you still need finance payment upfront means Invoice Finance will not be a suitable product for you.
Don’t deliver work until you’re paid
This might not be a good tactic if you’re trying to build a long-term relationship– if you tell someone “I don’t trust you,” they are likely to feel the same towards you. But if you have a client you don’t want to lose, yet who seems addicted to overdue invoices, you can inform them that finished work will be released once payment is made in full. You can give them a preview to prove the work is done.
However, no one goes to gets goods from the supermarket and tells them they will pay for those next week, it’s simply business to get paid for your work.
Offer a payment plan
Some clients may want to pay you, but might not have the funds to do so, perhaps due to an oversight in budgeting.
Consider offering a payment plan to clients who seem to be struggling to keep up with payments. There are companies that can set up direct debits for your customers so that rather than having to pay the full bill up front, they can have 25% of it deducted from their account each month.
You can also informally add a percentage of the overdue invoice to a subsequent invoice. However, with this, you effectively become a lender and you must be sure your terms and conditions are legally robust – we recommend you check with your legal representative before offering this.
What to do if your clients don’t respond to these tactics
These are all fine theories, but some clients might genuinely not be able to pay invoices until a certain date. This is particularly common if you are dealing with larger businesses. You might also have that rare client determined to push the envelope as far as they can and pay you at the last possible moment.
For situations like these, you’ll want to use Invoice Financing, which is Geneva Capital’s specialty. In a nutshell, Geneva Capital will take over the responsibility of collecting payment on the invoice and advance you up to 90% of the invoice’s value. When the remainder of the invoice is collected, Geneva Capital pays you the final 10%, minus a small service fee.
Click here to learn more about how Invoice Financing works.
Click here to get in touch with Geneva Capital to see how we can get your invoices paid faster.