Invoicing Changes Can Lead to Faster Payments

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IMGCAP(1)]Ordinarily, a CPA would seem immune to the commonplace issues of poor cash flow and slow payment, but the reality is, these issues challenge every small business owner, including accounting professionals.

And even when a CPA’s own business is fortunate enough to enjoy steady cash flow, helping clients deal with these issues is a never-ending project. CPAs can do themselves and their clients an enormous favor by taking the time to revisit invoicing practices to collect faster payments and help alleviate cash flow. By tightening invoicing practices, small businesses can help shift the balance from end-of-the-month hand-wringing to healthy cash flow.

The following are six invoicing tips that will help you and your clients prompt faster payment. Based on tried-and-true principles, each tip will keep small businesses on track by reinforcing the basics and providing new ideas and tools to shorten the lag between payment due and paid in full.

Know who you’re dealing with. It’s common-sense advice, but it’s also commonly overlooked. Particularly in this economy, small business owners should be especially attentive to a new customer’s payment record while also reviewing the records of current customers.

That’s because bad economic times can cause former good payers to become chronically late. For new customers, know who you’re dealing with from the outset. Research their payment histories through professional references to learn of any past payment issues. Also conduct a credit check with a credit reporting agency, such as Dun & Bradstreet or Experian, before accepting a large order from existing customers. There’s no fail-proof way to know who will pay on time or late, but CPAs and their clients should make it their business to be aware of any history of late payments, to limit the risk of late or nonpayment.

Get the invoice out fast. Too often, businesses point at the customer when it comes to late payments, but customers can’t pay invoices they haven’t received. Make it a policy for your office and for your customers that invoices are sent the day a project is completed or as soon as goods are shipped. A delay of only a day or two can mean missing the customer’s payment cycle and waiting until the next one.

Small businesses should take advantage of online transactions to speed both invoice delivery and payment. Consider invoicing and receiving payments electronically with online solutions. When opting for an electronic invoicing and payment solution, business owners should look for one that conveniently transfers payments directly into their bank account while also being compatible with any relevant invoicing software that they may use.

Make it easy to pay on time. One way to keep customers paying on time is to give them a choice of payment options. There’s nothing inherently wrong with an old-fashioned paper check, but when a customer’s cash is tight, requiring a check can mean waiting longer for payment. Business owners should consider a variety of options such as credit and charge cards that will provide cash quickly, regardless of a customer’s cash-flow situation. Cards provide an easy way to reduce the risk of a slow payment or nonpayment, and they give convenient options to customers facing a cash flow crunch.

Another useful payment option is an electronic funds transfer. Accepting automated clearinghouse, or ACH, payments is convenient for many customers, and it also saves time, given that funds are deposited directly into the user’s account as soon as they are available. That not only cuts the time required to receive funds, but it also eliminates the time and effort required to deposit a paper check.

Give them what they need. Small business owners should look at every customer transaction from the customer’s perspective, and that applies to invoicing. Businesses can avoid delays due to accounting technicalities by simply asking new customers what they require on invoices. Do they need a purchase order number, or will an invoice number suffice? Is a detailed breakdown necessary, or will a general description of goods or services do? Perhaps they require an Employer Identification Number on the invoice. Asking the right questions up front is free, but failing to do so can cost you time and resources.

Be clear about what you need. In business, if you want it, you’ve got to ask for it, so small business owners need to be crystal clear about their payment terms. There are few phrases in business that have less impact than the vague phrase “due upon receipt.” Add some real urgency to your invoices by sending them with a specific due date. Some customers who pay in 30 or 45 days will many times still follow their own schedule, but it’s at least worth restating the payment terms in writing.

Be prepared to make the call. No business ever went under from maintaining good records, but plenty have suffered the consequences of poor documentation. It’s important to observe this advice in one’s own business, and it’s equally as important to impress this upon clients. All communications with customers regarding invoices need to be recorded in writing and all changes in the scope of work or terms of payment should be put in writing as well.

When invoices do become overdue, a system must be in place to prompt action. The best course of action is an immediate follow-up phone call. A matter-of-fact approach and the assumption of good intentions on the part of the late payer are the best approach, because there may simply be a misunderstanding behind the late payment. That said, before any follow-up call ends, there should be an agreement on a payment date and a specific amount.

Once armed with these solid strategies for speeding payment, the final crucial step is to put them into practice for you and your clients. When it comes to improving invoicing, there’s no one secret. Shortening payment time is a game of small gains that adds up to a real difference. And it’s also a game of consistency. So don’t just re-examine your invoicing practices in the hopes of a quick touchup or easy fix—make smart invoicing practices your new way of doing business.

Mary Ann Reilly is senior vice president at American Express OPEN, a leading issuer of card products for small business owners. American Express OPEN recently launched AcceptPay to provide the benefits of efficient and speedy online invoicing.

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