Dealing with an outstanding invoice is more than just awkward or an inconvenience. If you don’t create a system based on payment reminders and payment terms, late payments and outstanding invoices can actually seriously affect the way your small business functions.
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Because you’re small and operating lean, you have less of an absorption cushion, financially speaking. If cashflow is affected, you and your team feel the effects a lot faster than if you were a bigger entity.
How to deal with outstanding payments?
Our tips on how to manage outstanding invoices will make your life so much easier. You will understand the reasons of payment delays. You will learn how to manage clients that don’t pay on time.
Tip #1 Proper invoicing is a must: so check out our advice to ensure that you stay above board.
Reasons of outstanding payments
Often, it’s not only a client’s late or missed payment that’s the issue. It might be our own lack of initiative. Let’s face it: most freelancers and small businesses would rather listen to the Top 40 on repeat for a week straight than have to chase clients asking for money. It’s humbling at best and an exercise in severe futility and embarrassment, at worst.
Look, business is business and no one is going to take you seriously if you don’t make them take you seriously. You’re in the big leagues now and part of doing business — that is, actually slogging to time tracking your billable hours — is invoicing clients.
Tip #2 Don’t hesitate to chase your clients! It’s in your best interest! Invoicing and payments is what business is about!
How to get paid faster?
- Write down terms of invoicing in your contract
- Send friendly payment reminders
- Automate! Turn auto-payment reminders with MoneyPenny Invoicing Software
Tip #3 Always make a contract and include all payments terms and agreements you made with your client.
Here are 4 top tips to help you get paid faster:
Terms of Endearment? Nope, Terms of Invoicing!
You’ve done the work so you definitely deserve to get paid — write every contract with terms that embody this mindset and you’ll be able to follow up with a gentle late payment reminder rather than a heavy interest charge on a client’s overdue invoice.
Terms of invoicing should be built right into your contract. If you’re using accounting software like MoneyPenny, you can include these terms on your invoice, as a fresh and friendly reminder. These terms are expectations that you have and that your client is effectively agreeing to when they sign on to work with you.
Tip #4 Set up payment reminders and automate. Hire MoneyPenny to be your assistant. First 30 days are FREE so give it a try!
What are standard Terms of Invoicing?
How do you know what is standard for your niche and business type? The great news is that there is no real standard here. You can set your own rules — it’s part of being a legitimate business! But there are some commonalities.
Contracts that have terms of invoicing as clauses within them are crucial because they respond to the nature of your business. For example, if it’s a smaller project or you’re billing hourly using your accounting software’s time tracking function, you can stand to charge simple interest.
But if it’s a bigger project, like a brand re-design or a web development project, small businesses are well within their rights to charge a “delayed payment” that kicks in after a certain amount of time.
If you want to know more, check The Best Invoice Payment Terms
Software like MoneyPenny also allows you view useful overdue reports on your dashboard so you can see, at a glance, invoices that have been aging since the date you issued them.
If you have a term that stipulates you must be paid “net 30”, any invoices that go beyond this 30-day payment period will automatically start to age and show up on your dashboard, along with any account aging reports you run within MoneyPenny.
This feature, coupled with the terms built into your contracts, means that you can automatically issue late charges and see what period clients fall delinquent after. Is it 15, 30 or 60 days?
The point is not to be the bad guy and overcharge your client. You’re not rooting for them to be late. The point is to deter them from being late in the first place.
One Size Does NOT Fit All
Don’t assume the worst. It’s perfectly okay to send a friendly payment reminder letter, especially if the invoice has not passed your overdue term yet. Typically, there are four levels of payment reminder letters you can send, based on the amount of time overdue and the initial terms you set up.
Starting with a payment reminder letter when pursuing payment from a client is a non-intrusive way to keep your client informed.
A second written reminder can be sent with slightly more insistent language once the first overdue period has passed.You don’t want to burn any bridges here but you do want to be firm.
If your client has viewed the invoice and you have accounting software such as MoneyPenny that allows you to see the status of the invoice, you can escalate the language of the next letter. You can also include the original clause the client had signed on to, once again as a reminder.
A final reminder can be sent, for an invoice anytime that has been overdue for anywhere between 60 and 90 days. Once again, you want to keep the language professional while outlining, in no uncertain terms, the consequences of being late and any actions that might be triggered as a result of this.
Outsource And Automate
As a small business, chasing down overdue invoices is literally the most nauseating thing not only because it’s super awkward and a delicate topic but also because there are about a million other, more strategic things you could be doing with your time.
Is there a cure? Sure, there is. And, no, it doesn’t involve a 4 day work week. But it definitely involves focusing your attention to things that matter while delegating to ensure what you need to get done, gets — well, done!
Hire Virtual Assitant
You can outsource the task to another freelancer such as a virtual assistant who’s in charge of following up with accounts receivable for your business. If you’ve got invoices just floating around without any way to track them, this person can be an invaluable asset. They’ll not only be responsible for following up with clients but keeping you updated on an ongoing basis.
But wait: didn’t good old Karl Marx predict we’d all be having way more leisure time when technology came around?
Pick up right invoicing software with payment reminders
Well, maybe it’s not “leisure” time per se, but you can definitely “outsource” your invoices to MoneyPenny’s software, which includes an automated payment reminder built right into your MoneyPenny invoicing system.
This way, not only do you have a set repository of invoices that are easily found, branded with your company’s logo and information, but you can easily view the date of issue and status of the invoice.
Hire Virtual Assistant and Use the Right Invoicing Software
You may still choose to outsource or hire out the duty of accounts receivable to a virtual assistant — but this is going to make his or her job a whole lot easier and, ironically, her billable hours charged to you a whole lot lower.
Your VA can view all invoices at once and collaborate with you within MoneyPenny’s accounting software.
With automated payment reminders, your clients cannot claim to have “missed” seeing an invoice. And your VA has half the work done, if they’re following up an invoice with payment reminder letter. Invite your Virtual Assistant to MoneyPenny
Set Up An Accounting System
Setting up your accounting system software in MoneyPenny not only allows you to automate payment reminders, view the status of invoices and payments and collaborate with other team members in the cloud itself.
Your accounting system should also be able to give you an overview, a system of review, for payments, how late they usually are or how quickly they are fulfilled. With this kind of information, you can refocus your ideal clients, refine your payment terms in your contracts and negotiate for more responsive payment terms.
How? Let’s take a look
Having a feature-robust accounting SaaS like MoneyPenny also allows clients to pay a percentage up front, as a deposit that contributes to the overall payment of the invoice. Many small businesses will, in fact, choose to break up the bill in this way so that clients don’t feel the pinch.
They can pay their team members steadily and, since clients now have sunk a portion of the money, final payment is much more incumbent. Many small businesses also don’t “hand over” the proverbial keys (final design files, site migration, going live, etc.) until this finally payment is made in full.
These terms are intricately tied into your accounting software. Make sure that your software is able to respond to the needs of your business. They are pretty standard for any small business or creative and digital entrepreneur out there. So make sure your business is watertight on all fronts if you hope to get paid on time.