The KashFlow Guide to

Getting Paid FasterFrom first-time freelancers to booming business directors, late payments are the bane

of every business’s existence.

In fact, the Federation of Small Businesses estimate that 1 in 3 payments to small businesses are late. They also found that over £26 billion is owed to UK small

businesses, and that around 50,000 of them are forced out of business as a result.

So how do you avoid late payments?

ContentsSmall businesses rarely have enough capital to cover several overdue payments. Many also find they can’t negotiate strong terms with bigger businesses, or even set terms that could be seen as too strict with small customers. It’s therefore important that small businesses have a number of options in chasing late payments, or avoiding them altogether. In this guide, we’ll talk you through those options – so you know what to do in each scenario.

• Page 3: Do the groundwork• Page 4: Tips on sending your invoice• Page 5: Make the right impression• Page 6: What to say on your invoices• Page 7: Increase your payment options • Page 8: Chase late payments• Page 9: Protect yourself against bad debts

Do the groundwork

Research your customer

Where possible, learn as much about your customers as you can before you go into business with them. Ask around to see if they have a reputation, or research them online to find out about their credit history.

If you can’t afford not to take the work, or feel the reward is worth the risk, you can still use this sort of information to set stricter terms and conditions where they apply.

saving money (it happens!) then you might consider adding a late payment fee to grab their attention. You may also specify that you’ll charge interest or debt recovery costs if your customer is late paying. UK law specifies “late” as being any longer than 30 days after the invoice is delivered, unless your contract specifies a longer period of time. The amount of statutory interest you can charge in B2B transactions is 8%, plus the Bank of England’s base rate. You can’t charge this if your contract specifies otherwise.

Set your terms

It’s important to draw up terms and conditions before you start the work. This way, you have written proof of your agreement. Your Ts&Cs should include the work you’ll do, how much you’ll be paid for it, and (crucially) when you’ll be paid.

You can also include accepted forms of payment, your chosen currency (if applicable) and set terms for early or late payments.

You might want to offer a discount of 1% or 2% for paying a week early, or by a certain date, to encourage early payments. If you can’t afford to offer a discount, or find you have customers that aren’t motivated by

If you haven’t already, speed up the payment process by sending electronic invoices instead of

physical ones. This saves time and reduces the risk of error – you can send the right invoice to the right

person and send it as soon as possible.

To further streamline the payment process, you can link these invoices to your business bank account so

that the money goes to the right place.

Send invoices straight away

Get into the habit of sending an invoice as soon as possible, as it starts the countdown clock on the payment due date. The sooner you invoice, the faster you get paid.

And don’t risk forgetting to invoice at all! There’s nothing worse than sitting around waiting for a payment, only to find you forget to send the request.

You can send invoices straight away using cloud software like KashFlow. Invoicing software like this also allows you to customise, edit, email or print your invoices. You can even set up automatic invoicing and reminders for late payments.

As an added bonus, invoicing software works across multiple devices. This means you can send it from your phone on site, then access the same information on yourdesktop whenyou get back to your office or home.

Tips on sending your invoice

Know who you’re invoicing

An unaddressed, impersonal invoice is heading straight to the “sort” pile.

Make sure you know the name and mailing address of the relevant department or individual who’ll be handling your invoice.

This is especially important when you’re dealing with larger clients or government bodies, who are more than likely processing hundreds of invoices at any given time.

Once you know who to contact, it is good practice to get in touch and ask about the kind of format they prefer. Are they digital or paper based? What’s their preferred payment type? Are there any key details, like order numbers, that need including in the invoice?

By sending an invoice that’s designed to make their job as easy as possible, they’ll pay it faster. And by asking, you’re building a personal relationship too.

Make the right impression

Send professional looking invoices

Imagine you’re sorting through invoices and you’ve got a plain sheet of A4 paper next to a full-colour, branded invoice – which are you reading first?

Professional-looking invoices are more likely to grab attention and get treated as a priority. So make sure you include:

• Your business logo

• Contact details

• A simple design to keep your invoice easy to understand

• Bold elements, like strong colours or highlights, to emphasize key parts like the payment deadline.

INVOICE

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Find out more

What to say on your invoices

Including the following details will help you get paid faster…

Specify your deadlines While the length of time it takes to get paid will depend on individual customers, research suggests that the average customer will pay two weeks late.

It’s therefore good practice to set a deadline that takes this into account. For example, setting a 15 day deadline when you want to be paid within 30 days.

Often, customers will keep money in their own bank accounts for as long as possible – and manywill wait until the due date to pay you. Therefore, setting your due date before you need to money means you’re not leaving yourself strapped for cash.

Ideally, you’ll be getting paid before you even need to money – so you can earn a bit of interest in the bank!

Communicate your payment terms

Make sure your payment terms are easy to understand. Always give customers a clear time frame, such as “payment due within 15 days”.

Even saying “payment due on receipt” can be too vague in some cases. Try to specify days rather than “net”, which is a term some customers may not understand.

Remember to be polite too. Using the word please, or adding “thank you for your business”, will help keep your customers relationships positive. It also adds a personal element to the payment process, reminding your customers that they’re dealing with a person, not just ticking a chore off their list.

Find out more

Increase your payment options

Give customers the option to pay online

If you’re sending electronic invoices, like those provided in KashFlow, you can include a “pay now” online function on the invoice itself.

These link your invoices to one of our partners (including Global Payments, Stripe or Worldpay) so your customers can pay you immediately with one click via online Visa, Mastercard or AMEX. This means you’re no longer relying on BACS payments or overdue invoices.

The key here is making it as convenient as possible for customers to pay you. Those are that are short on cash can pay using a credit card, which means you’re not stuck waiting until they have money.

Do your customer have membershipswho need to make reoccurring payments?

Look at digital solutions like GoCardless, and KashFlow’s “repeat invoices” button. Combining the two means you can keep track of who’s paid, their preferred methods of payments and more.

There’s plenty of ways to get paid faster, including…

enty of ways to get paid faster, including… There’s plent

Chase late payments

Send a late payments reminder

Not following up on late payments is one of the most common reasons for why the process takes so long.

As a minimum, you should set reminders for when payments are due so that you can follow up on them the next day.

Remember that delays are caused by a number of different reasons. Sometimes they’re just forgotten about, and reminding your customers can put you back on their radar.

It could also be the case that the invoice was misdirected, misplaced or misunderstood ( the amount due may not have been clear).

It’s therefore best to politely check in and remind them the payment is due. Maybe add a line telling them to get in touch if they’re having any issues.

If they don’t respond to your first prompt, then send another reminding them of your terms andconditions and the missed payment date.

If you’re going to charge interest on the late payment, then you can use this online calculator to work how much it’ll be:

http://www.londonfreelance.org/interest.html

If they still haven’t paid after 30 days, it’s bestthat you put all future work for them on hold.

Even if you’re halfway through a project or have more work lined up, it’s important to remember they hired you because they need that work doing. And if they aren’t paying, they aren’t getting the work done!

If your customer simply can’t afford to pay you, then it might be in both of your interests to adopt a payment scheme. This way they can pay you back, with interest, over a period of time.

With KashFlow you can easilyautomate unpaid invoices reminders so customers get prompts at intervals of your choice until they have paid. Take a look. N

EXT

STEP

S If you’re still having trouble receiving your payment, then ask your lawyer to send a letter on your behalf. If you don’t have one, you can look at membership groups like PCG for support. If you’re out of options, get in touch with the small claims court.

You can learn more about their process here.

Protect yourself against bad debts

Protect yourself with savings Write off bad debts

Sometimes, you’ll have customer that simply won’t, or can’t, pay. In that case, you need to make sure you are financially protected.

In an ideal scenario, you should have 6 months’ worth of income invested in a savings account. This’ll help act as a cushion against any cash shortages.

Starting a new savings account can take a lot of time, but the key to success is just saving as much as you can. As Warren Buffet said, “do not save what is left after spending, but spend what is left after saving.”

Your savings will soon add up if you’re consistent. Be sure to shop around for savings and investment options that best suit your business and income, and always make sure your debts are paid off before you start saving.

If your outstanding invoices are never going to get paid, then you’ll have to consider them to be bad debts. This is money you’re owed but can’t recover.

The only way to handle bad debts is to write them off. If you don’t write bad debts off when you know the invoice won’t be paid, then your accounts receivable balance will become extremely high. This’ll mean you’re overstating the amount of outstanding invoices you have, and give you an unrealistic forecast of your projected income.

To learn more about the process, you can read our guide to writing off bad debts.

About KashFlow

This guide to getting paid faster was brought to you by KashFlow – specialists in straightforward accounting software for sole traders, contractors & small business owners

across the UK.

Over 57,000 time-strapped business owner-operators use our Accounting software to stay in control of their accounts, get paid faster and make sure they’re tax compliant. And as a

small business takes on its first employees, KashFlow Payroll and HR are there to support too.

Started, grown and still based in the UK, we experience the same changes, challenges andlegal compliance UK businesses face first-hand – and from that, we’ve built software that

makes it all easy.

Please note that the figures included in this guide are correct as of October 2017, and are subject to change.

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