The ultimate guide to getting your clients to pay on time

Managing cash flow is critical to any business, as it determines your ability to pay bills and meet your financial obligations. When invoices are sent to clients, they must be paid on time to ensure a steady flow of cash into your business. Late payments can cause your business to struggle, leading to financial difficulties, such as defaulting on loans, difficulty in paying employees, and even bankruptcy. A business can maintain a healthy cash flow and avoid economic challenges by ensuring that invoices are paid on time.

For many small business owners, chasing up unpaid invoices is hard and can feel sacrilegious. No one wants to follow up with clients you are overdue. Some business owners also feel defenceless about dealing with late invoice payments and what they can do to prevent it. However, if you have a client who is not paying an invoice, there are some techniques and strategies you can implement that make a difference.

‍Clear terms

‍Make sure that your invoicing and payment terms are clear and easy to understand. Discuss the terms with your client and explain the steps you will take if their payment is overdue. To avoid any awkwardness, encourage the client to proactively contact you if they need extra time. You should also clearly display the due date, payment methods, and any late fees or penalties on the invoice.

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‍Background checks

‍Before taking on a new client, ask them to provide references from other suppliers. When you speak to the references, check if the client paid on time or if they had any issues with late payments. If you cannot connect directly with the references, see if you can find any negative online reviews. You'll want to avoid clients who have issues paying on time, as they are generally not worth the hassle.

‍Calendar invite

‍When sending an invoice for payment, one small hack that can help is to include a calendar invite with it. The calendar invite should have a subject such as 'Pay invoice of $220.00 to Business A'. Calendar invites are a helpful reminder as they can block out the time required for the client to process the payment.

‍Communication

‍If a client is overdue with a payment, reach out to them as soon as possible to discuss the issue. It's crucial to maintain open communication lines and be proactive in addressing any problems or concerns. Ask the customer if there is any way you can help, and remind the business why it's vital that you get paid on time.

‍Deposits‍

Another good strategy is to request a deposit before commencing the job. A deposit forces the client to set you up as a biller in their internet banking, and because they have paid you some money upfront, even if they are late in paying the rest of the bill, you are only partially affected. Paying a deposit shows the client is committed and is more likely to be on time for the final payment.

‍Payment reminders ‍

If you prefer to send invoices via a tool, a product like Thriday can be helpful. Thriday allows you to set up automatic payment reminders to be sent via email to remind clients of the due date and any late fees or penalties. This makes it easy for you, so you don't need to remember to do it. It also depersonalises communication, so it's not you, the business owner following up; it's the system doing it automatically. Often, the client has simply forgotten to pay, and a reminder does the trick.

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‍Early payment incentives ‍

Consider offering discounts or other incentives for clients who pay their invoices early. This can encourage them to pay on time and may help to build a positive relationship. Thriday makes it easy to add an early payment incentive which rewards a business for paying before the due date.

‍Multiple payment options

‍Clients like the convenience of being able to select from multiple payment options. If possible, you should support direct entry (BSB and Account Number), BPAY, and credit card payments. Credit cards have been shown to increase payment rates as they can be more accessible for people to use, especially if their details are stored securely on their browser or via Apple and Google Pay.

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‍Finance options

‍Numerous third-party providers provide instant invoice finance options to clients. Even some Buy Now, Pay Later services offer credit for business invoices. Providing this option upon payment could help you get paid on time if your client has a cash flow issue. Remember to make it clear to the client that this option is available when sending the invoice.

‍Payment plans

‍If the client cannot pay the total amount, you may negotiate a payment plan that allows them to pay off the debt over time. This agreement should be in writing and should include the following:

• The payment schedule.
• Any interest or late fees.
• Any consequences for non-payment.  

If all else fails and the customer has still not paid, you will need to pursue action legally or via a debt collection agency. Following the options above should hopefully prevent you from ever getting into this position, but if you do, there are some final options you can use:

‍Letter of demand

‍The first step would be to issue a formal letter that demands payment of the overdue invoice and sets a deadline for payment. It may also include a warning of legal action if the invoice is not paid by the deadline.

‍Legal action

If the letter of demand did not help, you could consider taking legal action. This can be expensive and time-consuming, so it's important to consider the costs and benefits of legal action and weigh that against the amount of debt and the likelihood of recovery. For example, you wouldn't pursue legal action for a $2,000 debt, as the cost of getting lawyers involved would exceed that significantly. If you are looking for a cheaper but reliable alternative, Sprintlaw provides online legal services of the highest quality but at a fraction of the cost.

‍Court action

If the client fails to pay the invoice or agree to a payment plan, you can take court action to recover the debt. This may include filing a statement of claim, which sets out the details of the debt, the grounds for the claim, and getting a court judgment.

‍Garnishee order

You can get a Garnishee order if the court rules in your favour. This order allows you to recover the debt from a third party, such as a bank or an employer, that holds money or property on the client's behalf.

Dealing with clients who are not paying their invoices can be a frustrating and time-consuming task for any small business owner. However, by setting clear expectations upfront, communicating clearly and often, using payment reminders, offering incentives for early payment, and offering multiple payment methods, you can increase your chances of getting paid on time.