6 Ways to Get Your Invoices Paid on Time
If you’re having trouble getting invoices paid by your customers, you’re not alone. A 2016 study from Fundbox found that 68 percent of small businesses are affected by late payments.
This puts business owners between a rock and a hard place. It’s frustrating to spend hours following up on past-due invoices, but it’s even worse to hold off on hiring, upgrading equipment or paying your vendors because of a cash-flow pinch. Still, client relationships can be fragile. Repeated phone calls and late fees don’t always go over well with the people who hire you.
Predictable revenue keeps you focused on the task of running and growing your business. Simply put, positive cash-flow keeps the wheels greased. Here are a few ways to make sure you get paid as quickly as possible for your hard work.
1. Accept All Forms of Payment
The easier it is for your customers to pay, the more likely they are to pay on time.
Paper checks, for example, may seem like a thing of the past, but according to a survey by the Association of Financial Professionals in 2014, businesses within the U.S. still pay half their bills by check. According to the Wall Street Journal, “That’s down from 74% in 2007, but the rate of decline has slowed, suggesting stubborn barriers to change.”
Clearly list your company’s name and mailing address on your invoices. If you don’t have an office, list a P.O. Box or your home address. Make it impossible to misinterpret where checks should be sent and when they’re due.
Credit and debit cards
Credit and debit cards are easy to use and therefore a form of payment that will help you get paid on time. Some of the best and most popular merchant credit card processing services include:
ACH Bank Transfers
Bank transfers are often the cheapest and easiest way to move money. QuickBooks offers free ACH transfers, meaning customers can deposit funds directly in your checking account with no fees.
This is especially helpful option for customers that you work with on an ongoing basis. Just setup the account and routing numbers once, then collect 100% of the money you’re owed.
It’s easy to pay and receive payments with Paypal, and it only takes a few minutes to get started. The receiver—i.e. the invoicer—is responsible for the fee of 30 cents plus 2.9 percent on every transaction. (Remember, these fees can be deducted as a business expense.)
On top of this, PayPal and QuickBooks sync beautifully together so you can offer customers this payment option without creating additional bookkeeping.
2. Create Accurate, Easy-to-Understand Invoices
When your revenue relies heavily on getting those invoices paid, it’s worth investing a little time in making them as clear as possible. Even the slightest ambiguity will slow things down.
Make total and due date clear
Start by making the payment amount and due date stand out. The customer should easily be able to identify how much they owe and by what date. These are two of the most important components of receiving prompt and accurate payments.
Discuss costs, fees, upcharges and overtime rates up front. Then, itemize these costs on the invoice. Customers want to know exactly what they are paying for. The fewer questions they have about their invoice, the faster you’ll get paid.
Send it to the right person
Depending on your business, you might invoice people or other businesses. Ensure you have the right contact information when sending out the final invoice—for businesses, this might be a CPA or someone in their accounts receivable department. Set yourself a reminder to verify this information on a yearly basis, too. The fewer hands the document has to go through, the faster you’ll see payment,
Track and simplify
Always include a unique number with your invoice as this will make it easier for both parties to record, track and follow up. Consider using simpler language too, like “days” versus the term “net” when listing out how many days until payment is due. Clearly state the details of your invoice terms and make them easily trackable to avoid any miscommunication.
3. Be Timely
Don’t wait too long to send out your invoices. The quicker you do so after performing a service or providing a product, the more top-of-mind the work will be.
Here are some ways to ensure your invoices get out quickly, and into the right hands.
Don’t underestimate promptness
Send out invoices according to the timeline stated in the contract, or at the very least, as soon as the project is complete. Don’t make your customers request an invoice to pay you.
Automated invoicing, one of the most helpful features in QuickBooks, allows you to create an invoice template that can be used over and over again. You can even schedule recurring invoices so you don’t have to spend time preparing them manually.
Be persistent with follow up
Larger projects and invoices may take some following up before payment will be received. Don’t be afraid to follow up on larger invoices a couple of times before the payment due date. Customers and clients are busy, and a payment reminder is often welcomed. QuickBooks can help here too—you can set automated email nudges to remind customers that a payment is due.
4. Establish Penalties
Small business owners tend to shy away from assessing late fees for fear of upsetting the relationships they’ve established with customers. Think of penalties as a way to promote timely payments, not punish your valuable customers.
Businesses get into trouble with late fees when they aren’t expected. Explain them to customers in conversation and state them clearly in your contracts for complete transparency. Late fees should never be a surprise.
Here are a few ways to implement penalties for late payment:
Flat late fees
A flat late fee is a specific dollar amount that’s useful when dealing with smaller invoices.
For example, assessing a 2 percent late fee on a $200 invoice only comes out to $4, which is hardly motivating. Instead, you could implement a flat $20 late fee to all invoices less than $1,000, then assess 2 percent on anything over $1,000.
In addition to charging a late fee, whether it’s a flat fee or a percentage, you can also assess an accruing interest charge for every week or month that payment is late. The terms of this percentage should be laid out in your contract or payment policy. An example would be to charge 2 percent capitalized weekly until the invoice is paid.
Finance charges cover the gambit of flat fees, a percentage of the invoice amount, accruing interest and any other forms of fees you assess clients for failing to pay. QuickBooks has this feature built-in, so you can assess any finance charges to outstanding invoices without a huge hassle.
When it comes to enforcing payment, this type of reinforcement works. If you do decide to implement late fees, be transparent about them to avoid creating conflict with your customers.
5. Automate Reminders
Don’t let your busy schedule interrupt cash-flow. Automating invoice reminders will save you a little bit of time and a lot of cognitive stress. It completely eliminates the mental clutter—“Has [customer] paid? When did I follow-up last? It is time to follow-up again?”—associated with collecting payments.
Automate reminders before and after the due date
Don’t wait until an invoice is 45 or 60 days past the payment date before setting up an automatic payment reminder. Like with the initial invoice, the likelihood of collecting old invoices decreases over time.
QuickBooks Online makes it easy to send past-due reminders in less than 30 seconds. In addition to sending invoices the day a job is complete, past-due reminders should also be sent promptly, right as the invoice becomes past due.
6. Incentivize Early or On-time Payments
Encourage on-time payments by providing incentives for clients. You don’t need to offer freebies or discounts to make people feel great about working with you. Think of these incentives as a way of offering a thank you to customers who make payment a priority.
Early payment perks
Positive reinforcement is a good strategy to offer to customers who pay early. Offer a 1 to 2 percent discount for those who pay within the “early” time frame window. For example, you could offer “2/10 net 30,” which means that payment is due within 30 days, but if payment is made within 10 days, the client will receive a 2 percent discount.
Send handwritten “thank you” notes
Every time a project is finished and paid for, spend five minutes writing a quick “thank you” note to the customer. This personal touch helps establish a good rapport between your business and your customers. Think of it as a receipt—a meaningful conclusion to the work you’ve done together.
Late and unpaid invoices create a lot friction in small business—there’s just no way around that fact. But putting a few simple systems like these in place can greatly reduce the time spent chasing customers and get revenue in your bank account more quickly.
Set your business up for success by leveraging the expertise of our trusted Aberdare Business Solutions advisers. For more information or a business evaluation please call our office at 281.599.3380 or email firstname.lastname@example.org.
Victims of hurricanes Harvey, Irma, and Maria get relief from Congress. They can take casualty losses from the storms even if they don’t itemize. They’re able to deduct uninsured personal losses more than a $500 threshold without regard to the 10%-of-AGI offset that generally applies to the deduction. 2016 income can be used to figure the 2017 earned income tax credit. The same applies for the child tax credit. This will prevent a cut in these tax breaks for lower-incomers whose jobs have been suspended or lost due to the hurricanes.
The 10% penalty on pre-age 59½ payouts from retirement accounts is waived, if the IRA or retirement plan withdrawals are not greater than $100,000. The income tax due on such distributions can be spread over a three-year period. Amounts recontributed to the plan or IRA during that span will be treated as rollovers, and tax paid on those amounts can be recovered by filing an amended Form 1040.
Victims can borrow more from company retirement plans such as 401(k)s, up to the lesser of $100,000 or 100% of the account. Loan repayments can be deferred. The 50%-of-AGI limitation on charitable donations is suspended for any cash donations to qualified charities that aid victims of Harvey, Irma and Maria.
Corporations can fully deduct cash donations for hurricane relief. The usual 10% of taxable income limit does not apply to such contributions. There’s a special break for hurricane-affected firms that keep paying workers even though business operations have been suspended in the wake of the storms. They get a 40% tax credit for up to $6,000 of wages paid to each idle employee.+���
IRS’s simplified per diems for lodging, meals, and incidentals are going up. In high-cost localities, employees can get up to $284 each day free of tax. In other areas, their daily stipend is capped at $191. Both amounts are up $2.
Businesses using this method have the choice to use these higher rates as of Oct. 1 or wait until Jan. 1, 2018. Firms can opt instead to use these higher rates as of Oct. 1 or wait until Jan. 1, 2018. Firms can opt instead to use federal per diems separately figured for hundreds of cities.
No change to the rates for meals and incidentals only, this stayed at $68 per day in high-cost areas and $57 in other locations. Self-employed individuals on travel can use these rates in lieu of keeping receipts, but their lodging expenses must be sustained separately. They cannot use the full $284/$191 per diems. The per diem rate solely for incidentals is also unchanged at $5 a day.
A Senate proposal on worker classification is drawing praise from business.
The bill from Sen. John Thune (R-SD) would provide a new safe harbor based on three criteria that, if met, would qualify workers as independent contractors:
You won’t automatically be audited for having above-average deductions; however, if your write-offs are excessively large, your audit risk can go up because that is a key factor in the Revenue Service’s return selection process.
Here’s an example where taking large charitable deductions raised a red flag with the agency. A couple was audited after they claimed total charitable write-offs of $142,250 for property donations to Goodwill. Because they couldn’t prove the value of the items donated, the Tax Court disallowed all but $250 of their deduction and slapped them with the 20% penalty for negligence (Ohde, TC Memo. 2017-137).
Charitable deductions can sometimes be lost if conditions are attached by the donor. In this case, the owner of a run-down movie theater wanted to transfer it in a bargain sale to an unrelated, newly formed nonprofit. Since the transferee hadn’t yet received its tax exemption, the building’s owner arranged a bargain sale with another charity but agreed that it could direct a subsequent conveyance to the ultimate transferee. This transfer restriction included in the contract of sale caused the Tax Court to rule that the owner didn’t relinquish dominion and control over the building and that no charitable gift was made (Fakiris, TC Memo. 2017-126).
Worker classification remains a priority. The Internal Revenue Service continues to seek back taxes and penalties from firms that wrongly treat workers as contractors. Unreported or underreported employment taxes make up a big chunk of the overall federal tax gap. The Labor and Justice Departments, along with Individual States also have vital roles to play in ensuring that workers are properly classified by the businesses they work for.
The stakes have always been high, lost taxes for federal and state governments and fewer benefits for workers who are improperly treated as contractors. The importance is magnified with the growth of freelance service gigs. Freelance gigs such as Uber, Rover, Grubhub and Fiverr are making up a growing portion of the part time economy.
To classify workers, the IRS uses three tests, each made up of multiple factors.
The Behavioral Test focuses on whether the company controls or has the right to control what the worker does and how to do the job. Key factors for employee status include instructions about performing the work, evaluation criteria and training.
The Financial Test looks at who controls the economics of the worker’s job. Being able to work for multiple firms and providing your own tools needed for the job are indicative of independent contractor status. Some factors favoring employee status are eligibility for reimbursement of travel costs and payment based on hours worked.
The Type-of-Relationship Test examines how the parties perceive each other. Providing paid vacation and retirement benefits indicates a worker is an employee, as does hiring to provide services indefinitely rather than for a specific time. Written language stating the worker is an independent contractor isn’t determinative.
Aberdare Business Solutions offers a variety of Lunch & Learn Seminars or on-site seminars regarding the above topics. Additionally, we include information pertaining to the Department of Labor and the Texas Workforce Commission. If you are interested in attending a seminar or having us speak at your company or association please contact our office at 281.599.3380 or email@example.com
The cost to become a dog groomer doesn’t qualify for an education tax break through The American Opportunity Tax Credit. The couple in the case has a daughter who after taking one class at a local community college, decided on a different track and enrolled in a dog grooming program with a company aptly named Canine Clippers.
Only tuition paid to accredited postsecondary institutions is eligible for the AOTC, and the parents provided no evidence that Canine Clippers met that standard or that their daughter attended at least half-time (Martin, TC Summ. Op. 2017-73).
IRS is on the prowl for filers who claim large charitable deductions, as a big-game hunter found out after he took a $1.45 million write-off for animal hides, skulls, horns, and other hunting specimens he donated to charity. He claimed the items he gave were of museum quality, with no market comparables, and should be valued at their estimated replacement cost.
The Tax Court disagreed, saying the specimens were commodities, not collectibles, and that fair market value is based on market prices of similar items. The Court allowed a $163,000 deduction, the figure determined by the Service’s appraiser (Gardner, TC Memo. 2017-165).