Small businesses often cite cash flow as their biggest concern. Collecting on your invoices in a timely fashion isn't always possible, and when it doesn't happen, it can result in a financial bottleneck. Late payments plague businesses that are running low on cash, because even when revenue and profits look good on paper, if the cash isn't in your possession, you can run into significant trouble – in your day-to-day operations and in making sure your own bills are paid on time.

A lack of focus on accounts receivable can lead to more late payments. Put more effort into getting paid faster by revamping your invoices.

According to Freshbooks1, 40 percent of self-employed professionals have at least one overdue invoice averaging $2,500. The company looked at over 10,000 invoices to create a checklist for what makes an ideal invoice. In fact, the company says that 91 percent of the invoices that met all criteria on the list were paid in full. That's worth paying attention to.

The checklist consists of seven points:

1. Avoid end-of-month invoicing. According to Freshbooks, bills that are sent on the 30th or 31st of the month are likely to take up to 20 percent longer to get paid. Send your invoices earlier in the month to increase your chances for timely payments.

2. Limit line items. Freshbooks maintains that two to five items are the "sweet spot," unless a client has specifically asked for a more detailed breakdown of your work.

3. Keep the invoice total low. Having to pay a large sum all at once may encourage creditors to delay paying, or may trigger their internal review process. If your invoice total is a large amount, you may want to consider breaking it down into smaller invoices. Even if all of them don’t get paid right away, you’ll at least pull in some ready cash. Freshbooks found the cut-off to increase your chances for quick payments to be $1,660.  

4. Include clear terms. Be sure to explain any late fees that will occur if payment is not received on time. This is a major factor in an effective invoice. Freshbooks found that as many as 94 percent of invoices that specifically mentioned late fees were paid. That suggests that this should be a major priority in your invoice revamp.

5. Be polite. Even if you are polite and courteous to your customers in general, it may not occur to you to use this kind of language or tone in a transactional document. Still, it can make a difference. Freshbooks found that invoices that simply include "please" and "thank you" get paid a median of two days faster than invoices that do not. This is a simple adjustment that can put money into your account sooner.

6. Offer customers the ability to pay online. This should be a no-brainer in 2019. Many people prefer to handle all of their finances online because it's a hassle for them to mail things out. It may not seem like a big deal, but anything you can do to create less friction for the transaction is likely to get you paid sooner, and online payments do just that. Customers appreciate not having to go to the post office to buy stamps and seal envelopes when they could just go to your website and make a payment.

7. Send automatic payment reminders. Set up a system that automatically sends out reminders, preferably by email, when payment due dates are missed. By making it automatic, it doesn't fall on you to remember to do it manually while you have other business at hand. The reminders will keep the bill in the client's mind and increase the likelihood that you'll soon be paid.

Not getting paid in a timely manner can hurt your business. If you can't pay your own bills on time because you don't have the cash you're owed, it can lead to financial problems and hurt your credit. Changing up your invoicing processes may lead to a dramatic difference in your ability to get paid more quickly.

1. https://www.freshbooks.com/press/data-research/how-to-write-an-invoice-that-gets-you-paid-fast

 

The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of Zions Bancorporation, N.A. Member FDIC