How to Get Your Clients to Pay Faster

Getting clients to pay their invoices promptly is crucial to the health of your business. Slow payments make it difficult for you to cover expenses and grow your business. Moreover, the longer a payment remains delinquent, the less likely you are to get paid at all. This wreaks havoc on your cash flow and can ultimately result in business closure, so getting paid quickly is essential. On this page, we’ll walk you through some proven strategies to get faster client payments while maintaining strong relationships.

Know Your Numbers

It takes a typical business 45 days to receive payment after making a cash outlay, CFO reports. However, some businesses whittle this down to around 30 days, while others take an average of 80. This is known as a cash conversion cycle or cash-to-cash cycle, and although it’s influenced by other factors within your business, a cash conversion cycle that lasts longer than the industry average can signal your receivables are coming in slower than they should.

With that said, the primary key performance indicator (KPI) is accounts receivable aging. A lower average age of accounts is better, and 30 days or less is ideal. However, “normal” aging will vary based on your industry and invoicing terms.

For instance, companies in business and professional services, manufacturing, and energy industries tend to have a much more difficult time getting clients to pay in a timely manner. On average, 10 percent of their receivables are 91 or more days overdue, Dun & Bradstreet research shows. This degree of delinquency is especially problematic because there’s less than a 70 percent chance an invoice will be paid at all once it’s 90 days overdue. The likelihood of collecting anything diminishes even more with time.

Keep an eye on your cash conversion cycle and accounts receivable aging. They can help you understand if your business has slow payment issues.

Develop a Documented Payment Policy

If you don’t already have a documented payment policy, create one. Your clients should sign it to indicate they understand your guidelines before you extend them credit through invoicing. It should also be accessible on your website and included with every estimate and bill. This ensures your clients can refresh their memory as needed and helps avoid confusion about your policies.

Run Credit Checks

When you invoice your clients after delivering goods or services, you extend them credit. This relationship should be treated as such.

First, create clear policies about how much credit you’ll extend and under which circumstances you’ll extend it. Then, run credit checks on each client before agreeing to invoice them and only extend credit in accordance with your policies.

If you aren’t currently doing this and your clients pay quickly, you can optionally grandfather them in. However, be wary of how you manage this to ensure each client is treated uniformly.

Ask for Upfront Payments or Deposits or Have Short Payment Windows

Upfront payments and deposits can minimize your risk considerably. However, they aren’t the norm in many industries and can sometimes create friction in customer relationships. If this is the case in your industry, consider shortening the payment window. For instance, you may give clients 10 days to pay instead of the standard 30.

Invoice Immediately After Work is Complete

Businesses often wait to invoice until the end or start of the month. It makes sense from an efficiency standpoint but can also dramatically increase the time receivables are outstanding.

Instead, invoice clients as soon as you deliver goods or services. This not only accelerates the payment window but also sends a subconscious message to your clients that you’re serious about collecting, which can speed them up, too.

Make it Easy for Your Clients to Pay

The fewer barriers your clients have when making a payment, the faster they will pay. For instance, if you only accept payment by check via mail, your clients are likely to let your invoice sit until they can process all their payables at once. The same is true if they have to call your office and speak to someone to make a payment. Conversely, if they can pay online with the card of their choice or ACH, they may pay immediately or on an accelerated timeline.

Always include your payment options and instructions for payment on your estimates and invoices. This eliminates another barrier and can also subconsciously speed up payments when they see how easy it is to take care of their bill.

Send Reminders

Sometimes, businesses don’t send reminders because they don’t want to seem intrusive. However, friendly reminders are almost always welcomed and can help your invoice move to the top of their stack of payables. Identify a schedule that works for you and your clients. An ideal payment reminder schedule might be something like:

• Invoice generated notice (sent the moment an invoice is created)
• Payment due date approaching (sent two business days to one week before the due date)
• First payment overdue notice (sent the day after a payment is missed)
• Second payment overdue notice (sent approximately two weeks after payment is missed)
• Subsequent payment overdue notices (sent monthly after missed payment)

Incentivize and Penalize

Your business loses money due to opportunity costs and time invested chasing invoices. Consider passing some of the savings on to your customers if they pay early and having them cover the costs when they pay late.

Explore what others in your industry do before instituting a policy. For instance, it’s normal to charge a small flat fee in some cases or a percentage of the invoice’s value in others.

Include details about incentives and penalties in your general payment policy. You can also include them in your payment reminders to speed up payments.

Go Digital and Automate or Outsource

Getting clients to pay faster can seem overwhelming if you do it all yourself. However, you can automate the entire process with the right invoicing software. For instance, you can set up your payment reminder schedule and have your system automatically add discounts or fees. You can also give your clients their own payment portal and automatically log all payments as they come in.

Outsourcing can work as an alternative. When you outsource your collections, a third party can handle all the reminders, collecting payments, and documentation.

Leverage Invoice Factoring

Invoice factoring can help you get faster payments, too. Instead of relying on your customers to pay faster, you sell your B2B invoices to a factoring company at a slight discount. The factoring company immediately pays you up to 95 percent of the invoice’s value, then behaves like an outsourced billing firm and collects payment from your clients. You receive the final sum when your client pays.

This eliminates payment delays. Plus, factoring companies perform credit checks on your clients, so you’re less likely to experience slow payment or non-payment. Moreover, it does all this without you having to change your payment terms, so you can continue offering terms that work for your clients and that allow you to secure more business.

Get a Free Invoice Factoring Quote

If you’d like to accelerate payment on your receivables through invoice factoring, we’re happy to match you with a factoring company that can meet your needs and offers competitive rates. To learn more or get started, request a complimentary factoring rate quote.