A business isn’t really a business until you have paying customers and one of the pain points you will have to overcome as a new business owner are late or slow payments.
A survey by Bonsai found that 29% of freelancer invoices were paid late and according to 2017 data:
- 60% of invoices are paid late
- For small businesses owners, invoices are paid 4.3 days late on average
- 1 out of 5 invoices are paid more than two weeks late
- Japan pays on average six days early
- South Africa, Mexico and Australia debtors were the worst offenders, paying on average 26 days late
- The U.S. pays on average seven days late.
Whether you’re a freelancer, small business owner, or a contractor, delays in receiving payments have real-world consequences on your ability to pay your personal bills (e.g., rent, utilities, etc), pay your business expenses (e.g., wages, rent, inventory purchases) and your mental health.
This is where having an invoice template and invoicing process can help reduce the headache of chasing up payments. Westpac, a leading bank in Australia provides a handy invoicing template for Australian small business owners. You will also find a guide on things you should include on an invoice to help you get paid faster.
FYI, there are software-as-a-service solutions that do this exact thing with minimal fuss. These include FreshBooks, Wave, Paypal, and Xero. In some situations, your business bank account may have this feature.
Once you have an invoice template, the next step is to decide when you want to be paid. Each industry has its own payment frequency standards. You can also use Invoice OCR to convert any physical document to a digital format.
Here are some common payments to consider on your invoice and terms and conditions include:
- PIA – Payment in advance
- Net 7 – Payment seven days after the invoice date
- Net 10 – Payment ten days after the invoice date
- Net 30 – Payment 30 days after the invoice date
- Net 60 – Payment 60 days after the invoice date
- Net 90 – Payment 90 days after the invoice date
- EOM – End of month
- 21 MFI – 21st of the month following invoice date
- COD – Cash on delivery
You may also wish to consider adding a penalty clause to your invoice. In the US, EU, UK, and Australia, a late payment penalty is legal. However, seek professional advice to be sure that your contract can be enforced.
Now that you have an invoice template and decided on your payment terms, the next step to improving your chances of getting paid without delay is to explore payment options. Specifically, this refers to deciding how you can get paid by your customers.
Common payment types include cash, credit card, debit card, cheque, and electronic bank transfers and each of these has its pros and cons. For example, while cash may seem convenient, there is an opportunity cost associated with its handling, processing, and recording with your bookkeeping. On the other hand, using a payment processor for electronic payments such as Visa, Mastercard, or American Express will incur a merchant fee but is often easier to track.
When it comes to payment processors, there are many to choose from depending on where you are located. In Australia, you can use any of the big banks or you can use the likes of Stripe, Tyro, Paypal, and Square. In the UK, you may choose from Stripe, Worldpay, Ayden, and Cardstream. And in the US, small business owners can choose from Amazon Pay, BlueSnap, Square, Stripe, Worldpay Afterpay, and many more listed here.
Choosing the right payment gateway will depend on what you sell and who you sell to. For example, if your business primarily deals with consumers directly (online or in-person), getting paid in cash or via contactless methods will be the norm. Therefore, you should provide a solution that makes payment frictionless for your customers. Meanwhile, if your new business deals primarily with other businesses, it is likely you will have to interact with accounts payable and procurement where payments are made via electronic bank transfer.
FYI, we’ve previously covered how you can improve your payment process for online businesses and this blog post goes over how to accept credit card payments with your business bank account.
In closing, getting paid for the value that you provide is an integral part of running a sustainable business and we hope this guide has been helpful.
