Almost 79 percent of small to medium-size businesses fail due to poor cash flow handling. One of the most important things you can learn is how to take care of your invoicing and collections.
Your invoice payment terms are essential for a proactive cash flow management plan. Here’s a guide to the best invoice payment terms for your business.
Standard Payment Terms
Most invoices use the payment term Net 30, which indicates payment is due within 30 days of the invoice date. That’s not your only option. As a small business owner, you’re concerned with managing cash flow, and you can use your payment terms to speed up customer payments.
Here are some invoicing terms that encourage speedy payments.
Early Payment Discounts
A discount is a great way to reward clients that are willing to put their money into your pocket sooner than they have to. You could use the term 2/10, Net 30, which allows the customer to take a 2 percent discount if they pay within ten days. Two percent is a small amount to pay if it encourages early payment.
There should be a penalty when a customer doesn’t meet the payment deadline. Some clients push their payment envelopes as a tactic to stretch their cash flow. If you don’t follow up on late invoices or charge late fees, they’ll know they can always pay late without a penalty.
Before charging a late fee, always contact the customer to find out why the invoice is still outstanding. They might have a problem with your product or service that you can resolve. It’s an excellent opportunity to improve your customer service.
Many companies charge a late payment fee intended to encourage on-time payment, not insult the customer. Be sure to put the existence of a late payment fee on your invoice, so clients aren’t surprised.
Be clear about the payment due date. Put a specific invoice due date on your invoice. When you use terms that can be misinterpreted, your customer won’t know exactly what you want.
Multiple Payment Options
Make it easy to send you money. When you give a customer lots of different ways to pay their invoice, they can choose the easiest one for them.
If you make it convenient, you will get more invoice payments. Consider allowing repeat customers to automate their payments.
Perfect Your Invoice With a Template
Design an invoice that always includes standard invoice elements such as contact information and payment options. Make the information on your invoice easy to read. Add your logo to reinforce your branding message.
Consider creating an invoice template so you don’t have to remember what to include on your invoices. Check out this example of the best invoice template you can use for your small business.
Set Better Invoice Payment Terms
Now that you understand the importance of your invoice payment terms, you can select the right due dates for your operations. When you pay attention to customer due dates, they’re more likely to pay on time.
Did you find this article helpful? If so, have a look at some of the other invoicing articles on our site.