When it comes to managing a successful business, getting paid on time is absolutely critical. So critical, in fact, that many small business owners assume it’s a given. After all, who would take my product or service and not pay me?!
It happens all the time.
In fact, the accounting field has a name for ESTIMATING how long it takes to get paid. It’s called Days Sales Outstanding, or DSO for short. In short, the DSO is how long you can expect to wait to get paid for a product or service you already delivered.
For many industries, the average DSO is 60 days. That’s 60 days of waiting for one client to pay you. If you’re a growing company with multiple clients, keeping track of DSO can be a huge challenge.
Even more challenging is what to do in the interim when you need cash to keep your business afloat.
That’s why managing cash flow is so critical. At the end of the day, it doesn’t matter how great your product is or how busy your company is – if you’re spending more than you’re getting, you will go out of business.
If you’re struggling with cash flow or looking to prepare for your expansion, the following tips can help you get paid faster.
1. Spell out your payment terms
Businesses spend so much time negotiating how much they will get paid that they forget to talk about when they will get paid.
If you don’t spell out your payment terms clearly, don’t expect to get paid on time. Be crystal clear about when and how you expect to get paid. If you’re in a face-to-face industry, you can request payment up front. This is perfectly acceptable and a common business practice.
2. Keep a detailed record of invoices
If you don’t keep a detailed ledger of all your transactions and outstanding invoices, it’ll be difficult to keep track of what’s coming and going. There are plenty of software tools out there that can help you keep a running record of your outstanding invoices. Make sure this info is always available at your fingertips.
Keeping your books organized has several other benefits, especially during tax time. The more organized you are, the less running around you’ll have to do later.
3. Make your invoices easy to understand
Your invoices should be clear and easy to understand. This means addressing all of your invoices to the person who will be processing the payment and ensuring they have a clear picture of what they’re paying for.
Your client should be able to read through the list of outstanding items quickly so that they can go ahead and process your payment. The last thing you want is for the hold up to come from your end (if your invoice isn’t clear, your client will probably have a lot of questions before processing the payment).
4. Send your invoices as soon as possible
After delivering your product or service, there’s really no time to waste to send out your invoice. The sooner your client receives it, the sooner you’ll get paid.
If you work with a recurring client or are involved in a profession with billable hours, it’s helpful to set up a payment schedule so that you can get your invoice processed quickly.
5. Include multiple payment options
It’s 2017. There’s no reason why you should be limiting your payment options to cash or check. Include electronic payments and mobile payments alongside the more traditional payment methods like cash, credit and check.
You can use Intuit’s PaymentNetwork or Freshbooks to make electronic payments available to your clients.
Check out Square Mobile to roll out mobile payment options.
And of course, there’s always PayPal for online business.
Are you thinking about starting an online business? These five tips will help you hit the ground running.
6. Use RPA technology
Automation technology can completely transform the way you collect payments and keep track of invoices. Robotic process automation (RPA) is a powerful solution that can help you automate your entire accounts receivable from invoicing to collection and even following up with clients.
While RPA might sound like an alien concept, it essentially refers to advanced software that keeps track of your entire accounts receivable. Yaypay is one of the best accounts receivable RPA solutions on the market.
To learn more about RPA solutions for your business, read: Ten Ways to Automate Your Small Business for Maximum Efficiency.
7. Offer incentives
Offering your clients incentives for paying early is another good way to get money through the door faster. Incentives may include a small discount for early or up-front payments. You might also want to consider offering future discounts, credits or gift certificates to sweeten encourage up-front payment. Whatever you do, thank your customers for making payment a priority.
8. Utilize custom cash flow solutions
When all else fails, cash flow solutions can help you manage your day-to-day expenses or fund the next phase of your business expansion.
Unfortunately, not all business owners qualify for favorable financing. That’s where the Red Door Capital Group comes in.
Managing cash flow can be tricky, but with decent accounting software and knowledge of effective invoicing techniques, you can minimize your DSO. The availability of custom cash flow financing solutions can also help your company stay liquid during its most critical periods.
If you’re a start-up, don’t make the mistake of underestimating how much time invoicing takes up. Research shows that creating, sending and following up on invoices can take up as much as 10% of your work time. If you don’t automate this process or make it easy to follow, you’ll end up wasting a lot of time that could have been used improving your business.
Johnny Martin (June 20, 2014). How can small businesses ensure they get paid on time?” The Guardian.
Meredith Wood. “6 Invoice Tricks to Get You Paid Faster.” American Express.
Xero.com. Invoice payment terms: Top seven tips.