Past due invoices can be a real strain on a small business’ financials. There are many things you can do, before the invoice is even due, to prevent delinquent payments. Your contract, payment terms, invoice design and a proactive payment reminder can help you decrease your DSO!
Make sure your client signs a sales contract, before you begin the work or provide the product. Your sales contract should outline your payment terms, your late payment policy, and emphasize how payments should be made. This will reduce confusion down the road, and you;ll have signed documentation that your client is agreeing to pay you, as per the terms of the sale. At this point, as them what billing details need to be included on your invoice, so that it can be processed without any delays. Include their request in the contact terms :
[Your company] will provide [their company] with the following billing details on the invoice:
- item 1
- item 2
- item 3
Not only will the be helpful for your records, but it will also prevent the customer from claiming there was missing information- they signed and agreed to the detailed list in the contact. Also list out who their preferred point-of-contact is for actually sending the invoice, if it isn’t them. That person should sign the contract too!
ProTip: In the signature section, provide a space and title for at least one another member of the company. If your primary point-of-contact suddenly turns unresponsive, you’ll be able to hold another individual at the company accountable.
Your payment terms should be included in your sales contract, so when they sign the contract they are also agreeing to abide by your payment terms. You can find a template online, but ultimately payment terms can whatever details you’d like. The most important thing you should highlight is WHEN you expect payment and any late fees that will be associated with delinquent payments (you definitely should have a late fee policy). Use short payment terns, like net30, instead of net90 or net120. Consider also adding a discount incentive for on time payment, like 10% off if paid within 15 days (this would read: 10/15 Net 30).
Also be sure to specify how you receive payments for their connivence.
There are many things you can do to create an invoice template that encourages on time payment. We made a free eBook covering all the best invoice design research.
Namely, make sure that you clearly and boldly list the payment terms (like net30) and the actual due date. This will help grab the customer’s attention, and make them think about the due date in finite terms.
Also be sure to include all the billing details, as requested and specified by your client.
It will reduce confusion if you provide the most detailed listing and description possible of services rendered.
Proactive Payment Reminder
Sending a payment reminder email before the invoice is due is the most significant factor when it comes to increasing the likelihood of on time payment. Using an AR management app like the FG Receivables Manager, sort your customers by those who have invoices about to be due (typically 7 days before due date works well). Send all those customers a basic alert that their payment is about to be due, include the invoice, and don’t forget to remind them of your late fee policy for delinquent payment. This will bring the invoice to their attention, and send a strong signal that you are quite on top of your business’ billing. They’ll know a late payment will definitely be noticed.
Be sure to also send another payment reminder the very day their invoice is due.
Need templates for Proactive Payment Reminders or other collection letter templates?