Billing. It’s the single most important process to ensure the livelihood of your business. After all, if you run out of cash, it’s game over.
And yet, it’s a process most entrepreneurs are running with rampant inefficiency. You’re so focused on doing the actual work that getting paid for the work becomes an afterthought. For a profitable business owner, though, it should be the other way around. Streamlining and optimizing your billing process should take a front seat.
Follow the tips ahead to simplify your billing process, get paid faster and deal with fewer invoice-related headaches.
Offer An Early Payment Discount
For North American businesses, cash flow is the number one most challenging financial issue. According to the annual Atradius Payment Practices Barometer, 47% of the total value of domestic B2B sales on credit was paid late. That’s almost half of all invoices being past due!
We’re not fans of offering discounts on your services, but the next time a prospective client asks for one, tell them you’d be happy to offer a credit of X% for each invoice paid ahead of the due date.
Let’s say you typically send invoices on the 15th for payments due by the 1st of the upcoming month; if a client pays by the 25th instead of waiting until the 1st, you might give them a 3% credit toward their next month’s service.
If you’re able to afford the slightly lower margin, this is a highly effective way to maintain a more consistent cash flow. (On a related note, if any of your service providers offer early payment discounts, you’d be crazy not to take advantage of them!)
Why offer a credit instead of a plain old discount? Because that way the client has to fulfill his end of the bargain (paying early) before receiving the benefit. It’s all too easy for a client to take the discount but still pay at his leisure, and the last thing you want is to be wasting more time trying to recoup the incorrectly issued discount.
Encourage Retainers Versus Project Work
Whenever possible, steer clients toward monthly retainers rather than hourly or project based work. If your business has achieved a certain level of stability, consider making retainers a requirement.
When you establish a recurring monthly retainer with your clients, you ensure a predictable, regular flow of cash in the door. You also cut down the amount of time necessary to find, pitch and win new work.
For clients, retainers are a win-win. Retainers ensure that their work takes priority over other flavor-of-the-week projects. Plus, working on a retainer allows you and your team to get to know the client and his needs on a much deeper level than in a one-off working arrangement.
If a retainer-based model isn't a fit for your industry, choose an alternate billing model that will help you get paid faster. Learn the pros and cons of project versus hourly billing here.
Require Up-Front Payments
There’s a lot of debate over requiring payment up front for work that’s not yet completed. Hear us out on why we think it’s a smart business move.
In addition to cash flow, non-payment is a major billing related issue facing businesses. According to the Atradius report cited above, 1.4% of B2B receivables in North and South America were written off as uncollectable in 2016. That’s the equivalent of billions of dollars of unpaid good and services.
When you require a financial commitment up front, you eliminate the issue of non-payment.
In addition to helping you get paid, collecting payment in advance secures the client’s commitment to the work being done. If you’ve ever had a customer who seemed invested in your partnership but then went M.I.A., you know the frustration. A client is much more likely to see a project through to the end and uphold the requirements on his end when he’s already got a dog in the fight, financially speaking.
Automate Payment Reminders
No, you’re not being rude by reminding a tardy client to remit payment.
Think about any bill you pay on a regular basis—your cable bill or your insurance bill, for example. When you’re late on a payment, they make sure you hear about it and continue reminding you until you pay! It’s simply good business.
Automate payment reminders to go out every 15, 30, 60 days and so on after a missed payment.
Hire An Online Bookkeeper
If handling accounts receivable is proving to be a weakness for you, that’s normal. It’s why you went into entrepreneurship and not accounting!
Hiring an online bookkeeper like Ignite Spot streamlines your financial processes and offloads the work of managing accounts receivable onto a specialized team. We know what works because we’ve helped hundreds of businesses clean up their books and start making more money from day one.
Learn more about hiring an online bookkeeper by clicking here.
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