Are you looking for ways to get paid faster and improve cash flow?
Do your customers take forever to pay your invoices?
Are you constantly chasing customers to pay you?
Chasing overdue payments can be one of the most frustrating parts of any business. That is why I recommend having a process in place to deal with collecting money. As well as what to do with any customers who fall behind on payments.
I am frequently assisting clients via our Accounting Services and Bookkeeping Services with this issue. Below I outline a few simple steps that any small business using Xero can take to get paid faster and improve your business cash flow!
Reference check new customers
How do you know if your new customer will pay on time? I recommend collecting all legal information upfront such as the legal name of the business (which can commonly be different to the trading name) and the registered office of the business. These are the minimum items needed to begin legal proceedings if required down the track.
I would make sure new customers supply at least one “trade reference”. Get them to provide aanother company that they deal with who can act as a reference. I would then call the references supplied and ask them what their experience has been.
In addition to trade references, you can also do a paid credit check reports using sites such as Creditor Watch.
Have clearly defined payment terms!
I recommend having clear “Terms & Conditions” of trade which is supplied to your customers. These terms and conditions should clearly set out the payment terms. Common terms depending on the product or service are 7 days, 14 days, or 30 days.
Saved your businesses agreed term in Xero in the default invoice settings. If there are any customers which have differing payment terms, update the Xero contact card for the payment terms applicable to that customer. This will automate due dates when raising invoices.
If you are using a branded customised invoice template in Xero; ensure that the payment terms are still on the invoice. It is easy to accidentally remove it during the customisation process.
Request deposits and progress claims
I recommend collecting a deposit upfront and invoicing progress payments for any large supplies, jobs or projects. Especially if the customer you are working with is new. This is a great tool for managing your small business cash flow. Also; a highly effective risk management strategy to ensure that you are not left out of pocket on big jobs if the client never pays. This is a no-brainer if you want to get paid faster and improve your cash flow! This is always my first recommendation to clients using our Bookkeeping Services.
Invoice as soon as possible
Invoicing to some businesses is seen as an admin task that is annoying and is easily put off. But let us be honest; if you do not invoice, you do not have a business. So, make sure you invoice immediately. The sooner you invoice, the sooner the customers payment approvals will begin. The sooner you will be paid.
For businesses who work on the go; you can download the xero app to your device. Use the App to raise and send an invoice while you are onsite or as soon as you leave the customers premises.
Send your invoices electronically
Always send the invoice to the customer directly from Xero. Xero keeps a full history of the customer communication about the invoice. This includes the date it was sent, the email address it was sent to, and it will even track if the invoice has been opened!
Xero also supplies the opportunity to send automatic reminders and follow ups to customers…see tip below!
Send your invoices to the right person!
This might seem obvious, but it is important to point out. Many businesses have processes for paying bills which can include sending an email to a specified email address. The person you communicate with may not be the same person that you need to send the invoice to. Make sure you are clear on the process of getting your bills paid before sending the invoice. Xero can include multiple email addresses when sending invoices out, if necessary, you can even include more than one person on the invoice.
I recommend getting the “accounts” contact upfront.
Connect a payment service. Do not forget to pass on the credit card fees!
There are many payment services which will connect to Xero. They allow your customers to pay you straight away using a credit card. A“Pay Now” button will appear on the invoice when it is sent.
A fitting example of this type of payment service is Stipe. A stripe account can be set up in a few minutes from within your Xero account. It also has a setting which allows you to pass the credit card fee to the customer! This means you can start collecting credit card payments from your customers within minutes without it costing a cent.
Set up a reply to email address and customise your email templates
I recommend setting up a standard “reply to” email address in Xero. Meaning that all emails sent from within Xero will be sent from the same email address. Providing consistency and avoiding confusion from the customers point of view. This is also especially useful if you have a staff member who has moved on. Customers will not be replying to a person who no longer works in the business.
I advise using an email address that is monitored often so that no customer questions go unanswered.
Customising the standard email templates I wouls also highly recommended. Customers are getting used to seeing the same xero standard template emails. For a point of difference, personalise yours.
Set up auto reminders
Xero provides you with a choice to send unlimited custom invoice reminders. You can choose to have the system automatically send one a few days before the invoice is due. Another one on the due date and then as many as you would like after. Ensure that each invoice reminder email is customised to the timing of when it is being sent.
Regularly review your accounts receivable list
I always make it a task each week or month to login to Xero and go through the list of invoices which have not been paid. For all regular reports prepared by your bookkeeper or accountant, ensure that the Accounts Receivables list is included in the reports. I recommend using the Aged Receivables Report so you can quickly and easily focus in on the overdue accounts. I always include this in the standard reporting package for clients using our Bookkeeping Services.
Xero has the functionality to send statements directly to the customer. Depending on your invoicing cycle, I would send statements at the end of each month. Getting into a regular pattern of sending statements means that clients will always know where they stand. It also acts as another touch point to ensure that they have received all invoices.
Chase late payments
Do not do nothing. If you chase a payment from a supplier for the first time a few months down the track, they will ask why am I only just hearing about this? I also recommend having a good audit trail. I would always document any corrospondence or attempt to collect payment from the customer. This will be useful if you ever need to get lawyers or debt collectors involved. I love to use the expected due dates and invoice notes function in Xero.
Use a debtor tracking App
Xero has many debtor management apps available which integrate. Take a look at the xero marketplace to see if anything suits.
If all else fails; you need to be ready to engage a debt collector or solicitor. Find out more about the process at Business.gov.au
Accounts receivable is one of the small business bookkeeping tasks which often gets left behind. For a healthy and consistent business cash flow, effective accounts receivable management is a MUST! Do it right and you will get paid faster and improve your cash flow.
If you would like any guidance in setting up any of the procedures in your business, contact me today for a free consultation.