How to Get Paid Faster
(And Have your Clients Excited About Writing the Check!)
According to the Ewing Marion Kauffman Foundation, about 14 percent of nearly 5,000 entrpreneurs cited late payments as their biggest challenge in 2010. And those concerns have only grown with the long recession. In 2011 small businesses, waited up to 46 days on average to get paid, six days longer than in 2010 and 10 days longer than in 2006, says the National Federation of Independent Business, a small business lobby group.
The most deceiving accounts receivable fact: the bigger the small business client, the harder it was to be paid in a timely fashion. According to a report by Experian, big businesses have been extending the amount of time they pay on invoices by 27 percent over the same time a year ago, translating to an additional two days (from 6 days to 8 days). The longer payment period trickles down to small businesses and severely impacts finances as they struggle to maintain cash flow and pay their own invoices.
In fact, a year ago this September, President Obama ordered government agencies to pay small businesses in as few as fifteen days in order to “put money in their pockets quicker.” Increased cash flow “results in permanent infusion of cash flow into their business,” said Small Business Administrator Karen Mills. “Their financial footing gets stronger – permanently.”
Unfortunately, the quicker government payments didn’t necessarily affect corporate America and how they pay their small business partners. But there are still a few things you can do to help shorten the payment window and better yet, have your clients excited about paying off those invoices.
1. Explain everything – Rather than sending an invoice with one big number and very little description, be sure to take the time to fully detail every product or service your business has provided. Customers want to feel good about what they’ve purchased. By outlining every item or service you not only give their purchase value, you also give weight to your business. Telling your client that you’ve charged them for 10 copies at $.05 each can be more than they can handle. There’s a point where customers will feel too much detail overwhelming and potentially threatening. Don't cross the line between being informative and ‘nickle and diming' your customer to death. Err on the side of caution and provide detail about the product or service you’ve provided without going too far.
2. Big numbers are BAD. Try not to put everything you’ve done onto one invoice that totals to one giant billable amount. No one likes to see huge numbers at the bottom of a bill. Even if the contracted amount is the same as the estimated amount, billing against the contract in a few smaller invoices will soften the blow and make it easier for those invoices to be paid. Also, lower invoice amounts don’t often require a second signature on a company check. Many businesses have a signatory threshold. When a check amount exceeds a specific dollar threshold, a second signature approval may be required, further slowing your payment. If you make efforts to keep your invoices below that ‘magic’ number (often $5,000 or $10,000) the invoice will be processed quicker and with less accounting hurdles to clear.
3. Be clear about when the invoice needs to be paid – Make sure due dates are prominent on the invoice and that there is a late payment penalty. If you can, offer a discount for cash payments within a shorter time horizon, eg. 10 percent discount on Net 10. If there’s an incentive for making early or timely payments, your customers may surprise you and take advantage of them!
4. Remember the Accounts Payable Department. Everyone wines and dines the decision makers but forgets about the most important people – the worker bees who do all the ‘real’ work, including write your checks. The people who pay your invoices enjoy being appreciated, too. Make sure to connect with key office personnel and make them feel valued and appreciated. That way if there ever is a problem with an invoice or a concern over a bill, there is already a well-established line of communications that can help to quickly solve the problems. If no one in accounting cares about you or your invoice, odds are it won’t be the first one to be paid.
PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations. To find a trusted accountant in your area, visit www.SmallBizAccountants.com.
Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.
Copyright Information 2011 Professional Association of Small Business Accountants