In the early years of Swish Design (when I was still doing our accounts) I did all our invoicing at the end of each month. At that time, our payment terms were 30 days which meant if a job finished at the start of a month, it would be 30 days before it was invoiced and it could be 60 days before I saw the payment for that job. And that’s if the client paid on time. If they didn’t pay on time and I had to chase them up, this could easily blow out to 90 days.
Any business owner knows that cash flow is king and my invoicing system was putting the business under constant cash flow pressure.
What happens when you’re under cash flow pressure? You make bad business decisions for one, (decisions made from a scarcity mindset are seldom good ones). Then there is the stress that comes from having no money in the bank and thus no way to pay your own staff and suppliers on time. And then there is the anger you feel towards the clients who are behind in paying (not the best thing for client relationships).
So what are the shortcuts to better cash flow?
1. Invoice a job as soon as it is finished
If you are a tradie doing jobs on site, you shouldn’t have to go back to the office to send an invoice, you should be able to generate an email invoice right there and then.
If you’re at your desk providing a service-based business like design, copywriting, videography etc, you should have a job tracking/time tracking system like Harvest or Time Doctor that can tell you exactly how many hours are to be charged out the second a job is finished.
And then you should be using an accounting system like Xero or Freshbooks that allows you invoice quickly and easily, and also gives people a link to pay online. Freshbooks actually also does time tracking so for solo operators in particular, it’s a winner.
2. Shorten your payment terms
If you’re a service based business like us, seven day payment terms is more than reasonable in this day and age. 30 day payment terms is a hangover from back in the day where businesses paid by cheque and it was more efficient to do a cheque run once a fortnight or month. These days with electronic payments, there is no good reason for 30 day terms unless you are dealing with huge companies or government departments that have very set-in-stone payment policies.
Where possible, get final payment as soon as a job is completed. Say you’re a plumber who’s just fixed a leaking toilet for someone – there are tools available these days that allow you to both generate an invoice and take payment by credit card there on the spot. If, like us, you’re providing a client with files, or uploading a website live on completion of the job, get the final payment before you do either of those things.
3. Get deposits for large jobs
Speaking of final payments … if a job is large and might stretch out for a while, invoice 50% at the start and 50% on completion. This means if you spend three months doing 30-40 hours’ of work, you’re not waiting for another month before you’ve actually got the payment for those hours. If a job is really really big, split the total into four payments and set clear milestones for when each of those payments will apply.
4. If a job stalls, invoice for the work done to date
Even if you’ve taken a deposit for a job, if it stalls on the client side, and it seems like it will be stalled indefinitely (I consider a month of no action on a job to be ‘stalled’), let the client know that you will need to close the job and invoice them for unpaid hours.
If you allow a job to stall indefinitely, and if you allow unpaid hours of work to sit there un-invoiced indefinitely, this is a form of holding credit for your clients (see point 6 below).
5. Follow up late payments immediately
If you don’t have the time to do this yourself, pay someone to do it for you. It will be the best money you’ve ever spent. If people know that they’ll be getting a phone call or email from you if they’ve not paid on time, they will make sure you’re always the first to get paid. If you’re known to be someone who is very lax in that regard, the opposite will happen.
6. Don’t hold credit for clients
Just don’t. If the job you’re doing involves you having to pay another supplier, then the client must pay for that job up front – or at least pay a deposit that covers the supplier’s cost. (For example, if we do a print job for a client, we get payment up front. It’s too stressful to find ourselves in a situation where we’ve paid our printer for a given job, but then had to spend months chasing a client to get the payment that covers both our time and the supplier’s printing cost.)
7. Have the same terms for everyone
While this isn’t practical all the time, 99% of the time it is. Don’t make life hard for yourself by making exceptions left, right and centre. I can say from experience that every time we’ve made a website live before getting final payment, or ordered and paid for something from a printer without getting a deposit from a client … those are always the times where we’ve been left carrying the can. While it’d be nice to think we’re great judges of character and know who we can bend the rules for and who we can’t, take it from me … we don’t!
8. Be very clear about your payment terms
For all of the situations above, if you’ve been very upfront with the client or person engaging your services as to how and when you require payment, then you will never have any problems getting paid on time. So have very firm payment terms, communicate these clearly to people prior to every job they do with you and then, as I mentioned in point six above, ensure you stick to them 🙂