Healthy cash flow is important for any business, but it’s absolutely essential for small business owners and especially in those first few ‘make it or break it’ years because starting in business is way easier than getting it right! 

Our Business Services Group help hundreds of SMEs and the team will always advise business owners to set clear payment terms with their customers, invoice them quickly, and follow up on late payments. That way they can avoid the dreaded cash flow crunch that can otherwise quickly put them out of business.

We’ve put together some simple guidelines for setting payment terms that can help you get paid quickly and maintain that all important steady cash flow.

Decide on your terms

The purpose of your payment terms is to outline exactly how and when you want your customers to pay you. Some business owners draw up a document to share with potential customers outlining their fees and terms. Others just include them in their work contracts and invoices.

However you decide to communicate your payment terms with customers, make sure they include:

• when payment is due 
• accepted forms of payment (i.e. cash, credit, debit, Paypal, e-transfer etc)
• your preferred currency (if you serve international customers) and
• early payment discounts and/or late penalties

Payment now, NET10 or NET30?

While it’s customary to be paid within 30 days of invoicing, as a small business owner you can set the payment terms that suit you best. 

In the digital age it’s not uncommon for small business owners to set a NET10 or NET 14 deadline – or even to negotiate payment terms on a client-by-client basis. 

Take into account what works best for you and your customers and be clear about expectations – that way you will make it more likely you’ll be paid on time.

When to invoice – and when to follow up

It’s in your best interest to invoice immediately. After all, the sooner you request payment, the quicker you’ll receive it.

Some small business owners offer an early payment discount as an incentive to pay faster – typically for NET30 invoices at a rate of 1.5-2%. Many customers will appreciate the opportunity to save money, and many business owners don’t miss the small amount taken off the bill.

Customers who routinely pay late may be motivated by a late payment penalty – also in the 1-2% range of an early payment discount.

Make it a policy to email a friendly reminder on the date payment is due. If payment is late, follow up with a phone call the next day to find out when you can expect payment. 

Final tips

• Take advantage of cloud-based accounting software such as Xero or QuickBooks Online that can be accessed anywhere, including via your smart phone, to generate professional looking invoices.
• Be willing to negotiate with late payers; partial payment is better than not being paid at all.
• Make sure you have the correct details on your client’s invoice to avoid payment delays.
• If you are dealing with very large businesses, make sure you understand their processes and adapt to their protocols and quirks.

Kevin Blake is Head of Business Services at MHA Carpenter Box. For more information, visit www.carpenterbox.com