Many small business owners struggle to get paid on time. Help them get paid faster, improve cash flow, and grow their business with FreshBooks.
Your clients turn to you for help on all kinds of things about their business’s financial health. But what do you do when the root cause of their problem is seemingly out of your control? You guessed it—we’re talking about customers who don’t pay on time.
For small business owners, getting paid on a timely basis is crucial. And yet, according to a survey by the Building Engineering Services Association, 92% of small business owners have had to deal with customer payment issues.
When clients are slow to pay—or don’t pay at all—businesses struggle to pay their bills and employees and may even be forced to close their doors. As their trusted advisor, you know this, and you can take steps to help them get paid faster.
- How Late Payments Impact a Small Business
- Wasted Time Spent Chasing Down Payments
- Reduced Cash Flow
- Hampered Business Growth
- Diminished Employee Morale
- Stress and Burnout for the Business Owner
- 7 Ways to Use FreshBooks to Help Your Clients Get Paid Faster
- 1. Include Clear Payment Terms in a Written Agreement on All Invoices
- 2. Get Them Set Up With Electronic Invoicing
- 3. Set up Automatic Payment Reminders
- 4. Generate Monthly Accounts Receivable Reports
- 5. Consider a “Carrot-or-Stick” Approach
- 6. Provide Flexible Payment Options
- 7. Set up Recurring Invoices for Monthly Payments
- What if Customers Still Don’t Pay Invoices on Time?
- Looking To Learn From Other Accounting Professionals?
How Late Payments Impact a Small Business
For small businesses, late payments aren’t just an inconvenience. They present a serious problem to your clients’ businesses for a number of reasons.
Wasted Time Spent Chasing Down Payments
According to a study from the UK-based digital banking platform Tide, the average small business owner spends 1.5 hours daily dealing with outstanding invoices.
That’s a tremendous waste of time that could be better spent training employees, developing new products or services, courting new customers, and working toward long-term growth goals.
Reduced Cash Flow
Cash flow shortages can force a small business to delay sending payments to their own suppliers and lenders or paying staff, leading to strained relationships with vendors, bankers, and employees.
Hampered Business Growth
Without sufficient working capital, small businesses may not be able to take on new projects or customers, fill large orders, or invest in new equipment. This can cause a company to lose its competitive edge.
Diminished Employee Morale
Late payments can impact employee morale even if a small business owner continues making payroll.
Employees may see the business owner cutting expenses, paying vendors and lenders late, or delaying investments into new technologies. This can cause employees to worry about the company’s future and perhaps even start looking for new jobs.
Stress and Burnout for the Business Owner
All of the above have a common result: stress, insomnia, and other mental health impacts on the business owner. Now, the problem isn’t just a business issue—it affects their life.
7 Ways to Use FreshBooks to Help Your Clients Get Paid Faster
If you’ve seen your clients struggling to collect timely payments, here are a few steps you can take to help them get paid faster.
1. Include Clear Payment Terms in a Written Agreement on All Invoices
Being upfront and clear with payment terms is a crucial first step in getting customers to pay quickly.
Unfortunately, many businesses aren’t always clear with their invoice terms, so customers don’t know they’re not living up to payment expectations.
With the help of their legal counsel, work with clients to include payment terms in their contracts and client agreements, and ensure every time they send invoices, they include the date of the invoice and payment due date.
2. Get Them Set Up With Electronic Invoicing
Are your clients still sending paper invoices and waiting on checks to arrive in the mail? It’s high time they joined the 21st century by sending digital invoices.
Sending invoices electronically in FreshBooks accounting software allows companies to avoid hours of manual processing. Your clients can automatically generate invoices from sales transactions rather than having to create, print, and mail them.
Customers that receive digital invoices tend to prefer them as well, as they can automate much of the labor-intensive processing on their end. And any time you can eliminate manual processes, you encourage a speedy turnaround.
3. Set up Automatic Payment Reminders
Often, missed due dates aren’t intentional—customers just get busy and neglect to pay on time. In these instances, automated payment reminders can be just the gentle nudge clients need to pay invoices.
With FreshBooks, you can show your clients how to schedule and send Late Payment Reminders when creating a new client or Invoice. These reminders go out automatically, encouraging clients to comply with payment terms without potentially awkward collection calls.
4. Generate Monthly Accounts Receivable Reports
Sometimes, it takes more than a simple reminder to get clients to pay in a timely manner. If your clients routinely have seriously overdue payments, they might need a wake-up call.
As part of your monthly reporting, include an Accounts Receivable Aging Report—you’ll find it in FreshBooks’ suite of details and customizable reports. This report highlights outstanding payments, so you or your client can follow up on overdue invoices and hopefully get them paid quickly.
You can also recommend clients send their customers their Client Account Statements on a regular basis. This provides the most up-to-date client activity, including their invoices, payments, and any credits.
5. Consider a “Carrot-or-Stick” Approach
Talk to your clients about taking a carrot-or-stick approach to their accounts receivable. This means offering a small discount to customers who pay early and/or charging a Late Payment Fee when customers pay late.
These methods can be extremely effective. According to FreshBooks research, 92.15% of invoices are paid when they include the term “interest” in the invoice payment terms.
6. Provide Flexible Payment Options
How many steps does a customer have to take to pay an invoice? Does your client accept credit and debit cards and other digital payments? Or do they require customers to pay with cash or check? Do they allow for partial payments, deposits, or setting up a payment schedule?
Today, customers expect to be able to pay however it’s convenient for them. That means your clients should accept credit cards, debit cards, bank transfers, and even mobile payments through FreshBooks Payments, PayPal, and Stripe.
With FreshBooks, your clients can also accept partial payments or deposits from their customers in a number of ways:
- When creating an Invoice, your clients can request a deposit or set up a payment schedule. That way, there’s flexibility for how customers pay, but they’ll also be notified as soon as they owe.
- Your clients using Online Payment options (like FreshBooks Payments, Stripe, and/or PayPal) can also enable partial payments from their customers.
7. Set up Recurring Invoices for Monthly Payments
If customers pay a set amount each month or year, there’s no need for your clients to manually generate invoices each and every time. Instead, help them set up Recurring Invoices.
Setting up Recurring Invoices in FreshBooks is simple. Whoever’s creating the new Invoice just needs to select ‘Make Recurring’ under Settings. FreshBooks also allows automatic payment for Recurring Invoices if they enable one of FreshBooks’ online payment providers—FreshBooks Payments, Stripe, or PayPal. In most cases, customers actually prefer
Recurring Invoices since they don’t have to remember to make monthly payments or run the risk of incurring a late payment fee.
What if Customers Still Don’t Pay Invoices on Time?
Unfortunately, despite your best efforts, your clients will deal with late-paying customers. When clear payment terms, early payment incentives, late payment fees, and flexible payment terms still don’t influence customers to pay faster, it might be time for more drastic measures.
Talk to your client about collecting payment upfront from chronically late paying customers. If that doesn’t work, it might be time for your clients to get new clients.
After all, it’s easy to write off one late or missing payment as a minor annoyance, but ignoring an ongoing issue has the potential to push the business into a tailspin. So work with your clients to leverage the features of their accounting software and shore up their payment process to avoid bigger problems down the road. Their future depends on you.
Looking To Learn From Other Accounting Professionals?
It can be daunting giving advice to clients—particularly when they’re dealing with an especially difficult situation. Sometimes, you just need to bounce ideas around with someone who understands exactly what you’re dealing with.
The FreshBooks Accounting Partner Community exists for this very reason. It was designed specifically to help connect accounting professionals through an online hub to share stories, ask questions, and offer advice.
Access to the Partner Community is exclusive to members of the FreshBooks Partner Program, which you can join and learn more about here.
about the author
Janet Berry-Johnson, CPA, is a freelance writer with over a decade of experience working on both the tax and audit sides of an accounting firm. She’s passionate about helping people make sense of complicated tax and accounting topics. Her work has appeared in Business Insider, Forbes, and The New York Times, and on LendingTree, Credit Karma, and Discover, among others. You can learn more about her work at jberryjohnson.com.