Whether your business is an SME or larger entity, you don’t need me to tell you that getting clients to pay invoices in full, on time can be a Herculean task. COVID-19’s dramatic impact on finances the world over hasn’t helped that one little bit. So, how do you deal with overdue invoices during these times of uncertainty?
I’d be willing to bet that many business owners faced with the unenviable task of chasing late payments during the pandemic would be willing to give clients the time they need. Unfortunately, potential cash flow crises and the possibility of a failed business mean altruism and understanding can only go so far. Any further, and you and your employees will find yourselves in a far worse situation.
If you’re stumped about how to get outstanding invoices settled, take a look at a few ideas that can help you deal with this thorny issue.
- Make Sure Payment Terms Are Clear
One of the most important things we can do for our businesses is to ensure that our payment terms are clear and enforceable. There should be no room for misunderstanding.
I’ve found that one of the best ways to do this is to present clients with written agreements that spell out the terms of payment, including fees and deadlines. The clients need to sign the agreement before we provide them with products or services.
- Invoice Clients Timeously
Doing all the invoicing once a month may seem like a sensible approach, but is it really? Months of lockdown followed by strict rules and regulations regarding social distancing and how various industries can and should operate mean that financial recovery won’t happen overnight.
Some people approach paying bills on a first-come, first-served (or paid) basis. After paying their personal monthly expenses, they’ll use what’s left to pay bills as they arrive. If your invoice lands on their desk when they’ve just about depleted their available funds, it will have to wait. I’ve found that a better approach is to send out invoices as soon as possible. On the whole, it has resulted in fewer payment delays.
For workflow reasons, a few other SME owners I know don’t invoice each client on the day or even the day after rendering services or supplying them with goods. Instead, they have chosen one or two days of every month to be invoice days. They invoice clients on those days, and those invoices state clearly when payment is expected. Doing this makes it easier for them to keep track of expected payments.
- Offer Easy Payment Options
One of the lessons we learned during the height of lockdown was the importance of convenient payment options. If the only way your clients can pay you is by bringing cash or a card to your office, you’re going to waste an awful amount of time chasing late invoices.
Take it from me – the easier and more convenient it is for your clients to pay, the sooner you will get your money. If your business doesn’t already accept payments via direct deposits, payment gateways, debit and credit cards, and mobile payment options, it’s time to start looking into them.
- Reward Clients Who Pay Early
A little acknowledgement can go a long way, and you can see this in action by rewarding early payment. I’ve found that rewarding clients who pay their invoices early generates enough goodwill to ensure those clients bring more business my way. The reward doesn’t need to be big – a small discount or deduction from their invoice is usually enough.
- Charge Interest On Late Invoices
The payment terms I mentioned above should include interest on late payments. Just as rewarding early payments can be an incentive, charging interest on late payments can be a deterrent too.
Clients who are consistently late in paying invoices can lead to cash flow problems and other struggles for small businesses. Charging interest is one way to deter them from making you wait for your money. The important thing is to let clients know upfront that interest will be charged if they don’t pay on time.
Under the payment terms section on your invoice template, outline any interest that will be incurred for delayed settlements. This way, everyone will be on the same page when additional costs are added.
- Remind Clients That Payment Is Due
Sending reminders that payment is due after invoicing clients can be effective in getting them to pay on time. The trick is to get the wording, timing and number of reminders right. The last thing you want is to rub your clients the wrong way by making them feel bombarded.
I’ve discovered that accounting software makes it easy to set automatic reminders, but if that’s not an option for you at this point, you can use good old email or a text message. The language should be gentle and, if need be, it should invite a workable solution.
I’ve found that the following words or similar generally receive a good response: “Dear NN, this is a friendly reminder that payment on your account of $XXX is due on DD/MM/YYYY. If you’re experiencing financial difficulties, please call us on XXXX-XXXX so we can discuss an amicable solution.”
- Be Reasonable And Flexible
It may seem contradictory to say that being reasonable and flexible are part of dealing with overdue invoices. After all, this should be all about getting your money, right?
Ultimately, an approach that’s reasonable and flexible is about being paid what you are owed, but sometimes those payments will happen ‘all in good time’. The reality is that the COVID-19 pandemic is an unprecedented situation.
None of us has experienced anything like it, and I know that some of my clients, whether they’re individuals or other SMEs, have been placed in precarious positions because of it. If they cannot afford to pay the full amount, perhaps they can pay their invoice in instalments.
Many of us are in the same boat and to be unreasonable and inflexible at this time is only going to alienate clients. The pandemic is not going to last forever, and when it’s over, we want our clients to come back to us. If we alienate them when times are tough, they’re going to take their business elsewhere.
I’ve realised that the trick when dealing with overdue invoices in a COVID-10 world is to be firm but gentle and to allow for some flexibility. It’s not necessarily going to see every payment made on time, but it’s certainly more effective than twiddling my thumbs or turning into an ogre.