We all know that selling a product or service is one thing. However, one of the keys to self-employed success is actually getting paid.
The key to the ‘getting paid’ process is something that every self-employed small business person needs to know and put into place before you sell anything.
Consider this. There are approximately 26 million self-employed small business owners in the United States.
According to an article written by Eyal Shiner in the Nov 16 issue of Entrepreneur magazine, those businesses are owed a staggering $825 Billion in unpaid invoices.
Yes, let's say that again. $825 Billion! Wow!
According to a study by U.S. Bank, 82 percent of small businesses fail due to poor cash flow management.
So if you are in a business where you allow customers to pay you over time, you need to look at the following information.
It is just as important to collect what is owing to you as it is to make the sale.
Let's take a look at some of the mistakes made by small businesses, and how to correct them.
5 Costly Mistakes Made by Small Business in Respect to ‘Getting Paid’
- Forgetfulness and Procrastination. How many times have I seen it where a business owner is simply too busy and forgets to send out the invoice. They forget the details and leave the invoice uncreated and not sent. This usually happens when there is a lot of work going on and sitting at a desk doing paperwork just is not in their plans.
I have seen cases where it takes the business owner weeks or even months to get the invoice sent.
The fact is that the longer it takes for you to send the invoice the longer it will take to get paid. Duh! That's a no brainer!
The Fix: Send the invoice as soon as the job is finished. In addition to this, you should create an SOP ( Standard Operating Procedure) with respect to the process of sending invoices.
- Sending Incomplete Invoices. This speaks for itself. If you just send an invoice that is on a blank piece of paper, not itemized, and the contact information is not available... good luck getting paid.
The Fix: Every invoice is an opportunity for you to market your business. To do this, each invoice should have all of your contact information including your website.
You can use the header and footer areas of your invoice to remind everyone that you are a unique business and that you stand out from others.
Itemize the invoice fully and make sure that you add the terms of credit and repayment.
- Failure to Proofread. So you remembered to send the invoice, but you failed to proofread it and the amount you put to be paid was incorrect.
So now it has to be corrected and that takes more time, and it delays payment.
The Fix: Proofread your invoice. You may not have the funds for a bookkeeper and this job may be yours under sufferance, but double check to make sure you have all the details on the invoice. Be like a carpenter, measure 10 times and cut once.
- Failure to add a Due Date. It is not enough to just put ‘payment due in 30 days’. That is not strong enough.
The Fix: Make sure you add the Due Date to the invoice so it reflects the actual date of payment.
- Follow up, Follow Up, Follow Up! It is a big mistake not to follow up on late payments. It is not good enough to send the invoice and just keep waiting for the payment. Your have to follow up and make sure that there is not a real problem getting paid. When customers have cash flow problems, it is usually the vendor that screams the loudest who gets paid first.
The Fix: The first thing you need to do is identify exactly who is in charge of paying the account invoices. You can email or call that person and find out where the payment is in their system. If you email and get no response, you must follow up with a call.
Those 5 mistakes are brutal to your cash flow, so look at them closely and implement them.
How to Be Pro-active in Your Billing.
To avoid bad debts in your business you need to be one step ahead of your client.
So, when you take on any new client or customer, and credit terms are to be allowed, you must do a credit check and reference checks. This is not hard to do, and you need to protect yourself.
In addition, ask for partial payment in advance. This is perfectly normal, and it gets the customer invested in the process.
Embrace technology because in today's modern age there is no excuse for sloppy invoicing.
There are many software companies like Xero, Freshbooks, Quickbooks and more that come with invoicing programs. They allow you to customize your invoice the way you want it. You can upload your company logo, contact details, payment details and so on.
Anytime you can embrace technology, do it!
And finally, after you have done everything to collect your payment, meaning that you have tried to contact the customer by email and/or phone and you still don't get paid, turn it over to a collection agency. They take a fee which is a percentage of the amount outsanding, but at least you get the majority of your money back.
Be proactive, positive, friendly and professional. Take heed of the solutions discussed above, and get control of your accounts receivable.