Today, I would like to share with you 5 invoicing strategies that will effectively reduce debtors and ensure that your invoices get paid on time. The term ‘Invoice’ refers to a document issued by your business to a customer. In the minds of many business owners, an invoice is a request for payment. What is seldom considered however, are the most effective ways of using an invoice to do so.
1. Remove the option for later payment from the invoice
If your business does have an option for customers that indicate an intention for payment at a later date, this option should be removed from the invoice. The presence of this option in an invoice is often to give your team an indication of when they should be following up on the debtor for payment. However, the unwanted result of having this option is the customer has now been offered to make delayed payment.
By removing the option for 30, 60 or 90 day payments, your business is also removing the expectation that it is acceptable to make delayed payment. Your business may still accrue debtors, but the amount of debtors will be reduced by making this change to your business’ invoices.
The option for ‘Net 30/60/90’ should be replaced with a phrase like "Due upon receipt."
2. Establish the preferred method of payment in advance
Another option is to settle payment before invoicing -- making the invoice a mere formality. The best way to do this is to enquire prior to doing the work what the customer’s preferred method of payment is. This way, both the customer and your team are prepared to make and receive payment on the day of delivery or service.
This may require having portable EFTPOS equipment if your business delivers a service or product to your customers. If so, then you should evaluate the need for this equipment. If when asked, the majority of customers indicate that their preferred method of payment is EFTPOS, then in the interest of receiving on-day payment and reducing debtors, it may be worth acquiring the needed equipment.
An invoice can then be provided simply for the customer’s records as opposed to a payment request for a debtor.
3. Ask for a deposit
Copying the standard invoices for your business’ industry doesn’t always work. If you see trends in the invoices from other businesses in your field, this doesn’t mean that you have to adhere to them.
For example: you may want to change your invoice to request a deposit. This may not be the normal approach adopted particularly for new customers with whom you have no payment history, you may want to request a deposit prior to beginning work and invoice the customer for the remaining cost of the service. Adopting this approach will help reduce the amount that your debtors owe you. Remember, that the two major killers of a business are not being profitable and running out of cash flow.
Having even a portion of your payment sooner will assist with the continuing costs of running your business.
4. Offer discount for early payment
Another way in which you can alter your invoice to reduce your amount of debtors is to offer a discount for punctual payment.
By offering customers a discount for paying more promptly than the average payment time, your debtors will be less inclined to delay payment. The first step is to assess the average delay between when you deliver your service, to when you normally receive payment. If a customer is willing to pay 15-30 days sooner than the average time taken to receive payment, you should offer a discount.
5. Offer a service incentive for on-day payment
Offering a service incentive for on-day payment is a highly effective option ensure that your invoices get paid on time.
This option, like option two, if implemented successfully, changes the act of invoicing into a simple formality. This option may entail offering free delivery of your product if payment can be made on delivery, or the inclusion of some ancillary service or warranty. It may appear counter-productive to offer a discounted service, but it’s important to remember that a high profit margin is only useful if your business can actually collect the funds. Offering a service incentive is an effective way to promptly collect funds and reduce the amount of your business’ debtors.
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