A lot of companies are still trading like we're in the 90's.
Stuck believing that their customers will only pay them on 30 day (or longer) payment terms.
Unfortunately, accepting this falsity will not only slow you down, but it may end up being the death of your business.
The statistics vary a bit, but somewhere between 75% and 82% of businesses that fail do so due to cash flow problems. It's quite clearly the number 1 reason why businesses fail, so it's something you need to be really aware of.
Where did 30 day terms come from?
30 day payment terms of from the olden days. The time before same day BACS payments. The time before computerised accounting systems. The time before Stripe and GoCardless.
They're here because you used to issue an invoice on the 1st day of February, print it out, pass it to your secretary who would then put it in "Post Out". Once a week they'd shove all the Post Out into envelopes, lick and stick some stamps, and throw them in the big red box on the way home from work.
The next day Pat comes along and grabs the post, takes it to get processed, and 2 days later its on its way to your customer.
Your customer's secretary received and opens the envelope, pops the invoice in their "Post In" tray, and some time that week it'll get passed to the accounts team.
The accounts team process the invoice, and mark the payment as due on the next payment run.
A cheque is written, and the whole process of getting that check in the envelope, in the post, past Pat's cat, and back to you is then repeated in reverse.
The process in itself takes a good chunk of time, let alone any queries back and forth or delays due to staff absence.
So what can you do about it?
Well, fortunately, times have changed. Technology has improved and fortunately 95% of business owners have embraced the change.
You're now in a position where you have the power at your fingertips to reduce your payment terms. Here's four ways of doing just that:
1 - Provide payment options
Payment options like Stripe or PayPal payment can be very easily added to your invoices by using software like Xero. Giving your clients the option to pay their and then when they're first reviewing your invoice will bring in cash quicker.
Take it one step further and put all new clients onto Direct Debits through GoCardless. Don't give them the option to pay late. Rather than putting your bank details on the invoice, put a clickable link to set up a Direct Debit Mandate with you.
2 - Take a deposit in advance
When starting up with a new client, or a new project, there's no harm is taking a chunk of the payment in advance. There are benefits to both you and your client for doing this. For you, you've got a chunk of cash in the bank ready to use for the project (on staff wages, costs, or just a nice buffer to have), and for your client they know that they've paid for you to start the work and get moving on the project.
Personally I wouldn't recommend anything less than 30% up front - aim for 50% if you can.
3 - Ensure your invoices are accurate
The quickest way to get paid slower is to have vague or inaccurate invoices. Sure, at the time, you might know what you're invoicing for. But the personal paying the bill may not have spoken to you and may not know what they're paying for. Vagueness and inaccuracy will spark concern, and they'll have to start asking questions and sending emails. This will never speed up the process, only slow it down.
4 - Send multiple copies
When sending your invoice, copy in multiple people in the business. You may have been dealing directly with the Marketing Director, so definitely send it to them, but also copy in the accounts team or Finance Director. Get it in front of faces, and cover yourself. You don't want it sat in an inbox that isn't monitored daily without knowing.
So that's it. We're now in the 2020's, and you can reduce your payment terms. Aim for 7 days. There's no reason why anyone should wait longer than 7 days to pay you in this day and age.