November 2022

It can be difficult to get debtors to pay up within a reasonable timeframe at any period of the year. But as the busy end-of-year and holiday season approaches, it’s more important than ever to find ways of getting invoices paid on time, before they languish into February.

The following five strategies will improve your cash flow by unlocking the funds tied up in your debtors’ ledger sooner.

1. Make payment due dates very clear
Don’t just state your payment terms on your invoice – ‘30 days from invoice date’, for example. Instead (or as well), add the actual payment due date. If the invoice date is 25th October 2022, include the payment due date of 24th November 2022 in a prominent position.

However, very few large businesses do payment processing daily. Realistically, your 30 days of credit is likely to be stretched a few days until the next fortnightly or monthly payment run. This credit stretching can be significant if you issue an invoice in the early part of the month, so make sure your end-of-month invoices are correctly dated 30th or 31st.

2. Itemise charges and supply all necessary details
Someone in your debtor’s organisation will have to approve your invoice before it can be paid. It is likely to be approved more quickly if you provide as much detail as possible. Ideally, include your debtor’s purchase order number and also the name of the person who issued the purchase order or requested the goods or services.

If your invoice is for finished goods, include product numbers, quantities supplied and individual prices for each item, rather than just an overall total. List any spare part numbers, and hours worked and hourly rate for labour costs.

3. Provide alternative payment options
Although online bank transfer is the most likely method to be used for B2B (business-to-business) payments, you may get paid faster if you offer other choices, such as BPAY, debit card, credit card, or even cash or cheques for very traditional small business customers.

Yes, you will pay a small merchant fee for Visa and Mastercard credit card transactions (less for debit cards and more for American Express and Diners Club). But in most cases it’s better to incur the charges and have the invoices paid so that the cash can be in the bank, either earning interest or reducing your interest expense.

4. Communicate your late payment policy
It’s important to have a late payment policy and inform your customers of the consequences of significantly late payment. Do this when you first start to do business with them, and also include a reminder of your late payment policy at the foot of your invoices or monthly balance statement

Some businesses attempt to charge interest on late payments, but in practice this is difficult to enforce. A more constructive policy is to suspend all further credit until overdue invoices are paid, and to make it clear that you will routinely inform your credit reporting agency of amounts that are more than 30 days overdue. The threat of credit withdrawal and/or business credit rating damage will often have the desired effect of prompting payment.

5. Get paid immediately with factoring
When delayed invoice payments are disrupting your cash flow, consider using a factor, a financing agent who will purchase all or part of your current debtors ledger at a discounted price, the discount being the factor’s fee.

More financing options
If your business needs a cash injection, there are several funding solutions that can help. Geared can help you access the right solution to ensure your business operations continue, including commercial term loans, equipment leasing, hire purchase and chattel mortgages. Contact us today to discuss what will work best for you.