Posted on 5 April, 2018 | 4 min
Startups might constantly feel like the deck is stacked against them when it comes to cash flow. It takes on average 72 days for an invoice to be paid to the UK’s smallest businesses—those with an annual turnover of £1 million or less¹.
Any startup can tell you it’s a huge problem, and a barrier to their very existence; cash flow issues are the reason some 82% of businesses fail in the first two years.
And part of that problem is that small businesses think it’s out of their hands. There’s nothing they can do but wait for payment, and hope it comes soon. That’s untrue; you are in control! Here are four practical tips for getting your invoices paid—all of which you can act on today.
1. Get your T&Cs up to scratch
SMEs in the UK collectively spend around £2 billion just chasing late payers¹. That’s a painful 8% of the total outstanding invoice amount. So any solution for speeding up payments ideally shouldn’t cost a penny more.
A good starting point is looking at your terms and conditions. They cost little to refine and could be the main reason you’re constantly dashing after debtors.
When you first start a business relationship and your soon-to-be debtor makes their initial order, send your terms and conditions across, outlining how long they’ll have to pay from the invoice or delivery date. Your terms and conditions should be included with every invoice you send from then on. Essentially, it’s a case of being incredibly clear what is acceptable and what isn’t in your business relationship.
Popular term options include seven, 10, 30, or 60 days (or more than 60 days if it’s fair to both businesses), though you’ll want to choose a timeframe that suits your startup specifically.
Check your accounting and money apps to gain a better understanding of your current and historic cash flow position and see what flexibility you have. It means you won’t create payment terms that are too long and leave you in the red. Similarly, short or payment-in-advance terms could prove difficult for many debtors to meet, leading to issues on their end that could impact your business relationship.
The trick is finding that sweet spot for you and your client.
2. Send invoices immediately
We all know the elation that comes from selling your very own product or service—particularly as a startup. But don’t get so tied up in the feeling of making a sale that you forget to make money.
Be sure to send your invoices as soon as you can. Also, look at how you’re sending them. More than three-quarters of today’s invoices are paper-based, with 68% sent by email, making both by far the most popular options for today’s businesses². Perhaps it’s time you tried using both in your startup; you’ll soon know which works best for you and your clients.
But most importantly, however you send your invoices, be proactive and send them right away. This is where you’re directly in control of your own cash flow. With a little luck, emailing an invoice immediately while the order is still fresh on your client’s mind could lead to faster payment—avoiding the issue where they get distracted and put you on the back-burner.
3. Chase those late payers
Speaking of proactivity, you’ll want to be very active in communicating with late payers and making sure payments to your business don’t slip through the cracks.
Unfortunately, almost 40% of small businesses spend up to four hours each week chasing late payers. It’s time consuming and rarely plays into your wheelhouse as something you want to do or are best at doing as a startup owner; so much so that 12% of SMEs employ someone specifically for chasing outstanding invoices¹.
To make the whole process easier, put yourself in a position where you always know who owes you money and how overdue the account is. Your accounting and bookkeeping apps will have this information, and you’ll see it in real time by connecting your money apps to your 9 Spokes data dashboard.
From there, you have plenty of options. You can dedicate some time each day or week for chasing late payers, or you can look at other solutions like tasking it to a third party for a fee. The choice is yours.
4. Know your rights
When your clients go over your payment terms, know that the law is on your side.
You are often within your rights to charge interest on debt recovery to a late-paying business. The UK Government calculate this “statutory interest” as the Bank of England base rate (currently 0.5% at the time of writing) plus 8% of the outstanding amount.
So, if your business is owed £1,000, annual statutory interest would be £85, or 23p a day. With the current base rate and the outstanding amount owed to you (and barring any different interest rates in your contract or any changes to the current statutory interest rules) you can calculate and apply the right interest to your invoices.
You are also legislated to charge up to £100 in debt recovery costs on top of interest, should you wish³.
However, you must send a new invoice if you add interest or debt recovery costs to the money you’re owed. You’ll also want to be sure that the interest is worth it, because you may damage a business relationship in the process.