Getting invoices paid on time has long been an issue in Australian small business. During 2017 the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) conducted an inquiry into payment times and has produced a report that shows just how badly Australia performs compared to other countries when we look at payment times. In fact, Australia has one of the highest numbers of payment days, the average being 26.4 days overdue. (Interestingly, Japan has the lowest number, with an average of 6.5 days early!)
There are various issues that small businesses face. Late payment is one factor, but businesses also face partial payment and spurious disputes over charges as a way to delay payment, causing unnecessary administrative costs.
Many small businesses choose not to pursue debts, but rather write them off as a ‘bad debt’. This encourages the poor conduct of customers to continue as they are allowed to get away with late or non-payment.
We encourage you to pursue payment for goods or services you have supplied as a business-to-business transaction. Clear and professional communication is the starting place. You may have more power than you think to influence the customer’s decision to pay—just by being clear, professional, polite and genuine.
Use Technology to Your Advantage
If you are using online accounting such as Xero, there is no excuse for not being proactive with your invoicing and accounts receivable processes.
Many businesses don’t get paid on time simply because they don’t invoice their customers in a timely manner. If goods or services are supplied but not invoiced until two months down the track, what does that tell the customer? It tells them that you are not in a hurry to get paid, and they can pay when it is convenient for them, for example, two months after being invoiced.
Most online accounting platforms, including Xero and its related add-on solutions, offer a mobile platform that allows you to invoice from your phone. For service providers who are on the road whilst visiting customers, this is a brilliant tool to maximise efficiency and prompt invoicing.
Communication is another factor in using technology well. Do you have your own default email templates set up to minimise the time spent while issuing invoices? Or do you simply use the default text provided by the software? Customise your templates where possible to make it personal and in language that is natural to you. You may need to investigate what your accounting platform allows you to do by way of different templates for email and invoicing.
When issuing invoices for a new customer, make sure you capture all their contact details before the first transaction. If possible, get the name of your main contact, business address, phone and email. This is a good time to validate their details on ABN Lookup or by checking the business’ website.
Some business owners find invoicing a chore because they have not kept accurate records of their time spent on services or a project; they are then backtracking to work out just how much they did spend, and perhaps ‘fudging’ the invoice a little. There are many great applications, which allow for easy time tracking that can then be allocated to a client, project, task or service type. If this challenge applies to you, consider the benefit of the time and stress saved against the monthly subscription required to make this part of your administration easy and efficient.
This kind of technology, when used well, will allow you to keep a running tally of time, products, services and billable expenses so that at month end or project end, the invoicing process is simply a matter of checking the draft and finalising. Having access to a running tally will also alert you to possible budget blowouts—you can then prepare the client by discussing the charges ahead of time so they do not receive an unexpected surprise with their invoice. This minimises the chance of disputes over charges.
The Most Important Factor: Clear Payment Terms
It seems basic—get your payment terms clear. But we see many invoices where the terms are not clear at all. There may be incomplete information, or there may not be any terms stated at all, just a bank account. Sometimes we see invoices that don’t even have a bank account listed!
Make it easy for your customers—clearly state the actual due date of the invoice. Don’t just list the terms, for example, due in 14 days. List the 14 day terms and the actual due date.
Standards for payment times are changing in general, and also differ according to industry norms. It is good to be aware of what others in your industry are doing—but also to make your own decision about what is fair for your business type and standard of service.
Again, many industries accept late payment fees as usual practice. If this is the case for your business, then this must be included on your invoices. Equally, more businesses are offering a discount if the invoice is paid before a certain date. Make this clear on the invoice if you wish to offer an ‘early bird’ discount.
Tips for Effective Online Invoicing
If you are reading this, chances are you are already using an online accounting platform such as Xero to manage your invoicing. But there is also a good chance that you could be maximising your use of the platform to invoice more efficiently and effectively. If you don’t already use Xero or a similar platform, learn more about the features and benefits of Xero here.
- Automate your invoicing as much as possible for your business type—use technology to your advantage. Set up default invoices with your logo, clear payment terms, payment methods and due date.
- Create templates for recurring invoices. Schedule recurring invoices ahead of time where possible.
- Set up goods and services as inventory items for sale—this way you can pre-populate default information in the invoice, such as price, revenue account allocation or GST tax code.
- Invoice customers on a regular basis, without leaving it too long before contacting customers. Either set a schedule, for example weekly or monthly billing, or invoice as soon as the project or service is completed.
- Offer more than one payment method, preferably several methods. Make sure at least one of them provides a fast and easy online payment option.
- Consider implementing a policy for late payments, and/or early payment discounts. Make this clear on your invoices if you put this into practice. You may wish to email customers to let them know of your changed terms and possible discounts if this is something new you will put into practice.
- Set up automatic reminder emails for overdue invoices. You may also like to set up default emails to remind customers of an approaching due date. Tailor the templates with wording you are comfortable with.
- If your software allows it, make sure to track billable expenses as they are incurred so it is easy to allocate these expenses to the correct customer at their next invoice.
Okay, we know it’s not fun … but it is a reality that many businesses will face at some stage. Goods or services have been provided to a high standard, within the agreed parameters or time frame, to the agreed specifications, therefore you deserve to be paid on time for your professional service. It can be challenging to understand why customers either delay or refuse payment when you have supplied the goods or services as you were contracted to.
If you become personal or emotional about chasing payment it will be harder. Money is simply a form of exchange for your goods or services, and you are now exercising your right to payment for a completed business transaction.
If you can retain professional boundaries and speak with respectful clarity and authority, you are more likely to be able to motivate them to pay your bill because of your professional communication. This hopefully will remind the customer of the value (beyond just monetary), of the goods or services already provided to them.
Example of Steps to Take
- Invoice is overdue by 7 days: send a friendly reminder. Assume the best—it may simply have slipped their attention if they have been particularly busy and they may pay promptly upon receiving a reminder.
- Invoice is overdue by 14 days: you may choose to repeat the same reminder you sent at 7 days, or you may state that you haven’t heard from them in over 14 days, and you will be ringing them to see if all is okay.
- Invoice is overdue by 21 days: send a firmer email, pointing out the invoice is overdue by 21 days, and to please make contact to arrange payment or discuss a payment plan. Ring the customer to discuss or leave a message about the previous email reminders already sent.
- Invoice is overdue by 28 days: send a similar or same email as the 21 day reminder, requesting contact to be made.
- Invoice is overdue by 42 days: send an email with ‘final notice’ in the subject line. Note the previous emails sent, and again offer to discuss a payment plan. State that if no contact is made within a week of the email being sent, you will proceed with debt collection. (Do not state that you will proceed with debt collection unless you intend to do so—otherwise it’s an empty threat).
- If there is no contact, proceed with debt collection. This may be a civil claim or pursuit by a debt collection company who will act on your behalf. At this point, the fees paid to the debt collector are worth it. Not only do you follow through on your principles and your right to payment, but also you hand over the management of the debt to someone else. Do not leave it months or years to pursue the debt—if you are going to pursue the debt, do it while it is still current.
Self-Audit—Have you implemented all these tips?
- Are your terms and conditions clearly listed on your invoice and website?
- Are your accepted methods of payment and bank details clear?
- Have you made it easy for customers to pay you by providing online ‘pay now’ options?
- Do you regularly schedule time for your own administration and invoicing? Invoicing as soon as possible after a job is complete, or on a regular schedule, is a major factor in getting paid on time.
- Is the GST component clear on your invoices?
- Do you regularly check the status of unpaid invoices and follow up with customers?
- Do you have automatic emails set up to remind customers of overdue invoices?
- Are you using technology to your advantage by automating and mobilising your invoicing processes?
- Is your logo on your invoice? This makes your invoices (and all documents) easy to identify for the customer.
- When sending your invoices, do you personally address your customer? It is not only polite, but ensures that the invoice is delivered to the correct person. Consider sending the invoice to multiple contacts; for example, send to both the accounts department and the person who engaged your services.
- Do you let your customers know as soon as their invoice is overdue? Or do you wait a while before tackling overdue invoices? First contact for an overdue invoice should be within a week of being late.