Reprinted from our April 2016 newsletter!
Cash flow is critical for small businesses and one of the best ways you can maximise your cash flow is to get paid faster and leave less sitting there in unpaid invoices you have issued.
Currently the average time it takes for a small business to get paid is around 40 days, although for business using Xero for invoicing this is less, closer to 30 days. That is consistent with what we experience.
There are some simple things you can do to get paid faster:
- No surprises. Make sure your client knows what it will cost up front and when you will do the work.
- Invoice as you go rather than once a month. If you have finished the job then send the invoice while it is fresh in your, and the clients mind.
- Date your invoices appropriately. Larger organisations and government departments tend to pay on the 20th of the month after your invoice date, so using 30 April as an invoice date could result in you being paid a month earlier than if you used 1 May as the date.
- Make it easy for your clients to pay. Make sure you bank account number and payment instructions are easy to find on your invoices. With Xero it is straight forward to connect a payments gateway to take online payments.
- Regularly follow up your overdue invoices. You can use aged receivables reports or in Xero the Overdue invoices dashboard to see at a glance who is overdue. In Xero you can set automatically emailed invoice reminders triggered when an invoice becomes nearly due or overdue. For some clients though a phone call may work best. Around the 23rd of the month is a good time to follow up the overdue invoices as a lot of businesses have invoice runs that pay on the 20th.
In Xero you can add the accounts receivable days to your business performance dashboard to track how you are going.