Cash flow is massively important to any small business, but many IT businesses are reluctant to chase clients who have overdue bills for fear of damaging their relationship.
Frankly, I say that any client who is consistently overdue with payments has damaged the relationship effectively enough, but how can you put in place measures that avoid speaking to clients about late payments in the first place?
Here are my 7 tips to avoid client late payments.
Use Automated Payments
In an earlier blog post, I spoke about the value of using Direct Debit to simplify Managed Service billing within your IT business. Any MSP’s who are not charging their clients a month in advance for services are certainly missing a trick in my opinion, and those who are waiting for regular clients to manually pay invoices are opening themselves up to late payments.
You can automate payments through Standing Orders, but over time this becomes unwieldy and inefficient. Direct Debit then becomes preferable.
For MSP’s, there are a few good UK Direct Debit providers I can recommend who allow you to take Direct Debits without the need to jump through the hoops the banks put in front of you.
For Break/Fix companies who regularly do work for clients, consider a service such as GoCardless to allow quick post-work billing.
Send Invoices by post as well as e-mail
Find out which of your clients prefer to be sent invoices via e-mail, and which prefer to be sent by post. When I owned an MSP, I worked with a number of clients who would receive an invoice via e-mail and then print it out.
This may appear odd or laborious to us technical sorts, but if your client is like this then you need to appreciate that e-mails get overlooked, while a printed invoice sent through the post has more of a chance of getting into that payments in-tray.
Run regular credit checks on clients and prospects
Services like DueDil offer a free and easy way to keep track of both clients and prospects, giving you early warning signs to those clients who are unable or unwilling to pay you on-time.
Charge Interest on late payments
In the UK, you are legally entitled to charge interest under the late payment legislation. Taking this route might damage your relationship with a client, but if they are persistent late payers then it can be a firm sign that you’re taking later payments seriously.
Implement a strong invoicing process
What is a strong invoicing process? It’s one that means:-
- sending invoices out in a timely fashion after you’ve done work
- ensuring and not assuming invoices have been received by clients
- telephoning (not e-mailing) just before invoices are about to go overdue
- telephoning immediately when invoices do go overdue
Use effective payment terms
Some businesses state “Due on receipt” on their invoices. I’ve rarely come across a client who pays attention to this.
Most clients will include paying an invoice in their next payment run – regardless of when the due date is. Find out when those payment runs are made. Typically this is weekly.
So instead of “Due on receipt” include a “Due within 7 days” or better still, a specific date the invoice is due to more effectively remind clients to pay on-time.
Pay your own suppliers on time
If you have a strong payment routine to pay your own suppliers in a timely fashion, then you’ll strengthen both your companies reputation and internal values towards payments.
It’s a much more compelling way to convey such values to clients as opposed to the “Do as I say, not as I do” attitude. See the web-site Pay On Time to understand how you can promote this attitude to your clients and suppliers.
You probably started your IT business to help others, not chase overdue invoices.
By making sure you have a strong set of processes around how you bill your clients, you’ll educate them into paying you on time and earn more respect professionally too.