Keen to begin the new year with healthy cash flow? Here’s how four small business owners are thinking outside the box when it comes to getting what’s owed to them.
At a glance
Here’s a snapshot of the advice from our interviewees:
- Change your invoice payment terms to prompt customers to settle their accounts early.
- Combine invoice-chasing with an outcome report to remind customers what they’re paying for.
- Offer incentives to settle old invoices.
When you’re a small business owner, chasing up unpaid invoices is par for the course. But if your business is facing low liquidity and mounting costs in the wake of COVID-19, it might be time to think outside the box to recover what’s owed.
We spoke with four business owners who shared some creative ways of getting paid while maintaining good working relationships with their clients.
Create a ‘finance manager’ for the task
While it’s important to get paid on time, you might not want to risk losing future revenue by damaging client relationships with a hardline approach to invoice chasing.
Stacey Price, founder of Healthy Business Finances, which helps business owners achieve their financial goals, has an innovative strategy to chase invoices.
If you don’t have a dedicated finance team, “Create an email address for a ‘finance manager’ and use that to chase up your clients. It functions to both escalate the situation and keep your own working relationship with the client intact,” Price says.
Make it fun
Copywriter and marketing strategist Eve John uses a fun and light-hearted approach to invoice chasing. It involves a sequence of letters sent via Express Post along with a copy of the unpaid invoice and a piece of red string.
The first letter informs the client they’re past their payment date and requests they tie a string around their finger as a reminder. The sign-off requests the payer return the string in haste so it can be used for another account. If they don’t respond, she’ll send a follow-up letter using more direct language – but she still keeps it fun by including another piece of string.
If this doesn’t work, a serious third letter is sent that informs the client if they neglect to pay or explain their circumstances, the debt will be turned over to a collection agency.
“Both I and everyone I’ve taught this to always receive payment by letter two,” says John.
“It’s a quirky method that allows you to maintain client relationships without being pushy. By asking the client to return the string, you’re letting them know they’re not the only ones who are late to pay.”
In the last few weeks of the year, John recommends a more urgent strategy called the ‘Hail Mary’ – a personal email sent to clients expressing disappointment that they haven’t paid their bill.
“I’ll emphasise that I love working with them and value our relationship, but that I feel disrespected,” says John. “People tend to apologise profusely and it has a 100% strike rate.”
Update your invoice payment terms
One way to avoid scrambling for cash at the year’s end is to give your customers less opportunities to be late with payments.
Paula Glynn, co-owner of digital marketing agency Pixelstorm, decided to invoice early for end-of-year work to keep cash flow liquid for the year ahead.
“We have lots of recurring revenue and there are always a few clients who have outstanding payments. This year, I’m bringing December’s invoices forward to November, so all payments that would come in mid-to-late January will be settled before we cut off our accounts [for 2020].”
Glynn has personally emailed each client well in advance to inform them of this change, what they owe and when they need to settle their account by.
“We’re seeking agreement to these terms and giving our clients a chance to tell us if they’re going to be late and why. If we don’t hear from them, we’ll chase up a response rather than the money itself which softens the blow.”
Prove your worth and be proactive
When customers know they’re getting value for money, they’re more inclined to pay up, says Shirlaine Tse, owner of TSE Tuition, a small business that teaches secondary English.
Experience has taught her that standard emails, texts and calls chasing payments only get results about half the time.
“When I combine it with a feedback call about the student’s progress, around 90% of outstanding invoices are paid within the week,” she says.
This is an approach that can be taken proactively to avoid late payments in the future.
“We send out our reports by the 5th of the month and invoice on the 5th, which functions as a little reminder of what we’ve achieved for our clients.”
Incentivise people to pay early
As the year draws to a close, Price recommends sweetening the deal to reach those clients who are really late to pay.
“Providing an incentive is the best way to get old invoices paid,” says Price.
“In my experience, invoices overdue by more than 120 days are likely to be paid in less than 50% of cases. But any money in the door helps. You could offer those clients [an incentive]. For example, if they agree to pay by 23 December, give them a 15% discount.”
If you still have no luck in getting invoice payments over the line before 2021, talk to one of our small business lending specialists about how a Prospa Line of Credit could help to ease your EOY cash flow concerns. Call 1300 882 867.
