5 ways to get paid more quickly as a small business
It’s an unfortunate reality for millions of small businesses across the UK: some clients will pay late or not at all.
In fact, by aggregating invoice data in our online accounting software, we recently found that just 51% of UK invoices were paid on time in 2015.
We also found that where you live within the UK makes a difference too - for example, only 24% of invoices in Sheffield were paid on time, while Manchester-based enterprises saw the best payment terms with 75% of invoices paid on time.
Research from FreeAgent confirms that just 51% of UK businesses were paid on time in 2015.
Although late payment affects all businesses across the nation, small businesses are the most hard hit as they rely on prompt payment to keep the lights on.
The issue has become so critical that the UK Government announced in July 2015 that part of the remit of a new Small Business Commissioner role will be to investigate late payments on behalf of small businesses.
If you’re a small business owner struggling with late payment, here are some proactive ways to give yourself the best chance of getting paid promptly:1. Agree and sign a contract before you start working
Even if you have a friendly relationship with your client, putting a contract in place before you start working will help to avoid disputes later down the line.
A good contract should set out the work you intend to deliver, the expected terms of payment, and the legal and financial ramifications of late payment or non-payment (for example, you could charge interest on the outstanding balance).
The contract should also make it clear that the client is paying for your time and work product, not their ultimate use of the work. Whether the client uses the work you did or not, you should be paid.
If you’re looking for some contract templates, check out LawBite’s gallery of legal documents.2. Send professional invoices
Are your invoices sending out the right message about your business?
Sending unpolished and unprofessional-looking invoices undermines your credibility - you want your clients to take your invoice seriously, so make sure you're demonstrating that you take it seriously too.
Try using a cloud accounting software that allows you to produce sharp invoices from professionally designed, ready-made templates. FreeAgent also auto-generates invoice reminders so you can chase late payers with the minimum of effort.3. Set shorter payment terms
The longer you give your clients to pay, the longer they may take to do so. If you want to get paid sooner rather than later, try setting shorter payment term times.
FreeAgent’s research has showed that some clever tweaks to your terms could make all the difference; setting either a seven-day or a “pay immediately” zero-day term can be more effective than standard 30-day terms.
Make sure you invoice quickly after you completed the work too, as there’s little incentive for a client to rush to pay you if you’ve dawdled getting the payment request to them.4. Allow clients to pay electronically
If you’re only allowing payment by bank transfer, you could be doing yourself a disservice.
Some online accounting softwares will allow you to take payments online via more immediate payment options like GoCardless or PayPal, just by including a link in your invoice.
Your client can then just click to pay you online via their bank account or credit card - pretty much instantly.5. Don’t give up on late payers
Even if you think the client can’t pay right now, it’s worth having the awkward conversation and picking up the phone to ask when they plan to pay you.
If it is just a short-term issue with a client who is usually reliable, you could maintain a good relationship by offering an extension rather than enforcing late charges.
By FreeAgent. FreeAgent offers award-winning cloud accounting software designed to meet the needs of contractors, freelancers, micro-businesses and the accountants they work with.