Small businesses across the US rely on quick payments to maintain steady cash flow and cover expenses. Quick payments will improve the financial health of any company. This will also make your accounting process more manageable. To maintain you will have fewer open invoices and accounts receivables to maintain. Usually, business owners get a small business loan to cover their expenses if the invoices remain outstanding. Suppose you want a customer to pay their bills on time. You must send them invoices at the end of any transaction. And regularly remind them of payments due.
Follow up on your open invoices, so they do not go past the due date if you are a small business owner or a freelancer. You need money to cover your expenses, so you do not end up slowly paying your vendors. Here are a few tips that will allow you to pay invoices quickly.
Request a down payment
This is one of the easiest ways your clients can pay, especially if you must outlay funds to start a project. This method will help you get a portion of the invoice in advance. This is better for long-term projects that can take months to complete. Getting payment in advance will help you pay for all the costs needed to complete that project.
Try to create small, simple, and straightforward invoices
If your clients are not paying you on time, there is a chance that the problem is in your invoices. It is essential to make sure that your invoices are short, simple, and straightforward. Poorly designed invoices are never a good way to ask the client for payments. They can eventually lead to late payments. It is your duty that your invoices are clear and provide all the necessary information to clients.
Send Invoices on time
The sooner you send your invoices, the quicker you will receive payments from your clients. Make it your habit if you have a small business or freelancer. Try to complete your work earlier than the agreed-on due date, and send invoices along with your last milestone. This way, the work is fresh in your mind, and if the client wants any changes, you can make it easier.
Set clear payment terms in advance
It is essential to clear all the terms and conditions with clients before you take on an order or start a new project. This way, your client will agree to payment dates in advance, and there will be no confusion about when the work or targets are to complete.
Make sure that you accept more payment methods
As a small business, it is essential to reach more clients through different payment methods. It will make your business even grow internationally. The flexibility of your payment methods will help clients’ payment methods be more accessible. This will help you get invoices paid quickly. Try new payment apps like Zelle, where customers can wire you funds instantly and at a very low cost for both parties.
Provide a discount for early payment
Some vendors offer an early payment discount such as 2/10, net 30. This means the buyer may deduct 2% of the amount owed if the vendor is paid within 10 days instead of the standard 30 days. For instance, an invoice amount of $1,000 can settle in full if the buyer pays $980 within 10 days. In this example, the buyer will save $20 (2% X $1,000) for paying 20 days earlier than the regular due date. If the buyer can do it every 20 days, it will occur 18 times a year (365 days divided by 20 days = 18 times). That means the company could save up to $360 ($20 X 18 times per year) each year by using a single $980 amount. Hence, the annual percentage rate is approximately 36%.
Looking at it another way, if the buyer had to borrow $980 from their bank for 20 days at a borrowing rate of 6% per year, the interest for 20 days would be only $3.22 ($980 X 6% X 20/365). By paying $3.22 of interest to the bank, the buyer will save paying the vendor $20 and, therefore, will be better off by $16.78 ($20.00 minus $3.22). If this occurs 18 times a year, the net annual savings will be approximately $301 [$16.78 X 18 times; or $360 per year saved minus the annual interest paid to the bank of $59 ($980 X 6%)].
Factor your invoices
Invoice Factoring is a financial transaction and a type of debtor finance. In an invoice factoring agreement, a business sells its accounts receivable (invoice) to a third party (called a factor) at a discount. A company will often factor in its receivable assets to meet its present and immediate cash needs versus waiting for payment based on original contract terms. Factoring invoices mitigate credit risk.
These key steps will help you get invoices paid on time and more quickly. If you want a smooth cash flow for your small business, you can follow these key steps or speak with BitX Funding’s account executives to determine the best method.
BitX Funding is the online marketplace for small business owners looking to fund a project. We specialize in connecting small business owners with lenders who will compete for your business. We believe small business owners drive the economy and are passionate about helping your company reach its full potential.