As a business owner the most important thing is to keep your finances and bookkeeping in order. However, if your clients constantly forget to pay you in time, you lose money and eventually you might suffer cashflow problems. So you have to remind your clients to pay in some way without sounding like a mobster pointing the gun at the debtor.
Try This Before Reminders
Although sending reminders to your clients is a good way to pursue them to pay, there is a more sophisticated method not too many people think of: having them pay instantly with an online payment. Paying by check or bank remittance is tedious for everybody, even for you. However, if you allow them to easily pay online, realized in the form of a big bright button on your online invoices, the convenience of paying immediately is handed to your clients on a silver tray.
But if the fast payment option doesn’t work, it is time to call in the heavy artillery: motivating clients to pay in a timely fashion by giving them a discount for early payments. It doesn’t have to be too much (10% of the due amount would be the most), but rewarding your clients if they pay in time is still a better solution than punishing them.
First Step Before Reminders
A main problem with online accounting solutions is that by default the invoice due date is 30 days after the invoice was issued, giving your clients plenty of time to pay– or to completely forget about them. The best way to avoid this is to set a narrowed deadline interval between the issue date and the due date: only 15 days. This still gives your client plenty of time to collect the necessary amount, while it is strict enough to force him/her to pay.
Setting up Reminders in Xero
No More Excuses
Modern accounting software is even capable of tracking the status of your invoices. See FreshBooks for example: if you check the status bar of your invoice, you can see the exact date it was created, sent, viewed and (partially/fully) paid. Thus, if your client says he/she didn’t get the invoice, but it was viewed according to the software, you know what you have to do.
Be Nice, But Stern
Make your reminder as polite as possible, but you must effectively transmit the message that should your client fail to meet the deadline, there will be severe consequences. As for reminder intervals, the best practice is to gradually decrease the amount of time between the last and the current reminder until you reach the deadline. Afterwards, you have to send a reminder every single day telling your client that being late will cost him/her money which can be a certain percentage of the due amount or a flat rate added to the invoice.
What If the Situation is More Complicated?
If a new client fails to pay his/her very first invoice in time, it is best to ask him/her personally the reason behind that. It is very likely that the client wanted to pay, but for some reason couldn’t. Thus next time, when you send him/her a new invoice you can set a less strict due date for him/her and finally get paid in time.
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