It’s guest post time again. This week we’ll hear from Wendy Dessler:
Getting paid is one of the major reasons why companies get into business. For businesses of all types – and this is especially true for new small business owners – receiving payments on time is an absolute must if your company is going to survive, thrive, and achieve great things.
For new small businesses, late payments can quickly become a devastating problem. A survey done by the National Federation of Independent Business in 2012 determined that 64% of small businesses had outstanding invoices that were at least 60 days or more past due.
Today, we will take a closer look at payment terms and in particular the best terms for new small businesses to prevent past-due invoices. We will look at all of your options, the different types of terms, and corresponding data.
A Definition of Invoice Payment Terms
When a new small business sends an invoice to a customer, it’s the best way to let a client know exactly how much they owe for services rendered. Payment terms, on the other hand, let the client know how long they have until the payment is due. Terms can also tell them the exact method of payment expected from them.
More important than anything else, payment terms delineate the timeframe that your business is willing to wait until compensation is received. Another part of disbursement terms is what customers can expect if they do not pay their invoices on time. Some companies impose a penalty or charge additional interest if the final date is surpassed without receiving the expected payment.
Another excellent possibility – and a fantastic way to get customers to pay quickly – is to offer a discount if they were to pay their bills ahead of term. As an example, let’s say you offer a customer Net 30 terms. This means the client must pay their invoice within 30 days of the invoice date. You can grant a discount to customers that pay within Net 7 days, or even Net 14 days. Offer whatever percentage or type of discount you feel comfortable with.
We will now look closer at the different types of compensation terms and how they will affect your business.
The Most Common Types of Payment Terms
- Net 7 – payment is expected within seven days of the invoice date.
- Net 10 – payment is expected within 10 days of the invoice date.
- Net 30 – payment is expected within 30 days of the invoice date.
- Net 60 – payment is expected within 60 days of the invoice date.
- Net 90 – payment is expected within 90 days of the invoice date.
- EOM – payment is expected at the end of the month.
- 2/10 Net 30 – payment is expected within 30 days of the invoice date. If the customer pays within 10 days, they will receive a 2% discount.
- PIA – payment is expected in advance.
- Due upon receipt – payment is expected immediately upon services rendered.
As you can clearly see, there are many payment term options to choose as a new small business owner. Some companies set compensation terms on a customer by customer basis. Others offer the same payment terms to every customer. And still other companies will make certain exceptions based on individual situations.
How to Choose the Best Terms to Avoid Unpaid Invoices
Ultimately, the goal of every new small business should be to receive payments for services rendered and receive them on time.
Basically, you have to manipulate the terms in order to receive money by a specific time.
As an example, let’s say that you hope to receive payments within a month of issuing an invoice. Logically, it would seem wise to put Net 30 terms on your invoices. But there’s nothing logical about the way that companies pay their bills.
In reality, the best way to get paid within a month is to drop your payment terms down to Net 10 or Net 14. Previous business owners know that their customers rarely pay on time. And based on previous history, your customers are going to act like most other small companies operating in today’s business environment. So giving them less time to pay their invoices helps to make up for the additional time that you’ll have to wait to receive invoice payments.
Change the Wording on Your Invoices
Getting the wording right on your invoices is crucial when attempting to receive payments on time. Making simple changes to the wording can and will definitely result in receiving money faster.
This may not seem like much, but adding a simple blurb to the bottom of your invoice will make a major difference in the amount of time that it takes for you to get paid.
Two excellent blurbs include:
- Please pay your invoice within…
- Thank you for your business.
Making these slight changes and adding these phrases to your invoices will help your new small business in a number of different ways. First, it helps express your appreciation for your customers and, even more important, it lets them know that you are patiently waiting to receive payments due to the company.
Avoid Asking for Payment Due Upon Receipt like the Plague
You might be wondering, “Why shouldn’t I ask for payment due upon receipt?”
Based on information gathered from two studies – one by FreshBooks and the other by Xero – it was discovered that companies interpret the phrase “upon receipt” as a license to pay their invoices whenever the heck they feel like it.
You do not want your customers thinking that they can pay your bills whenever it’s convenient for them. So set a specific timeframe and let your customers know that payment is expected within those parameters.
Contact a Collection Agency When All Else Fails
Nobody likes to think about it, but customers are going to screw you over from time to time. It’s the nature of doing business and it’s something that we have to expect and account for.
Instead of losing the money in its entirety, you may consider hiring debt collection services to see what they can do. Sure, you’ll have to pay the collection agency a percentage. But getting some of the money owed to you is better than getting nothing at all. So keep that in mind and use the information and guidance that we’ve provided today to choose the best payment terms and avoid past-due invoices.
Wendy is a super-connector with OutreachMama who helps businesses find their audience online through outreach, partnerships, and networking. She frequently writes about the latest advancements in digital marketing and focuses her efforts on developing customized blogger outreach plans depending on the industry and competition.
Twitter Handle: @outreachmama
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