Frustrated with invoices being paid late? You’re not alone. A research report from Atradius shows that 27% of all invoices sent by small and medium size businesses are paid late. While some of these invoices are paid a couple days late, 32.3% are more than 30 days late. With late payment of invoices being a big problem, the natural question is what can a company do to combat this widespread problem?
While there is a large amount of advice on this topic, most articles miss two of the most important things a company can do to encourage the rapid payment of invoices.
Bill Quickly! As soon as it is practical to send an invoice, send it. If you make a delivery on Tuesday morning, send the invoice Tuesday afternoon. If you bill on a monthly basis, send the invoice on the first business day of the month. While this advice sounds very intuitive, there is wonderful research which supports this advice from FreeAgent and Xero.
The data below is from the clients of FreeAgent, an invoicing software designed for freelancers. The chart below ignores when the invoice is due, and instead focuses only on when the invoice is sent and paid. Invoices sent within one week of work being completed, typically get paid within 5 days of the invoice being sent. Waiting an extra week, won’t just push back payment by the week but it takes to send, but clients tend to pay five days slower.
When you bill is completely under your control! Although having online accounting software certainly makes it easier to gather up the information to send invoice. Firms that use online accounting software tend to send invoices more quickly.
What is the other factor that encourages the quick payment of invoices? Having tight payment terms! Not surprisingly, the more time you give a client to pay an invoice, the more time they will take to pay.
Online accounting platform software firm Xero analyzed the payments related to 150,000 invoices (see the chart below). Invoices which were due within 15 days of being sent, typically got paid a little over 30 days after being sent. Those that gave clients 30 day terms, had to wait 50 days to get paid.
While payment terms can be determined by industry norms, there will always be some clients that are willing to pay quicker than others, particularly if they can get some financial incentive to do so. When possible (or appropriate), try to negotiate quicker payment terms with new clients. For existing clients, perhaps offer a discount if they agree to tighter terms.
There is no secret to getting paid quickly. In fact, it’s common sense. Get your clients to agree to pay quickly and then bill them as soon as possible. If you are looking for a great invoice template to send to your clients, try this one.