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How many times have you sent a client past-due invoices, only to hear nothing back?

Small-to-medium-sized enterprises (SMEs) in the U.S. were owed $825 billion in 2016, according to figures released by invoicing financing company Fundbox. And the value of funds tied up in unpaid SME invoices is equivalent to 5% of the GDP!

If you have late payments from your clients, you aren’t alone. In fact, just 30% of businesses in a recent survey by YouGov said all their invoices had been paid on time.

Past-due invoices can have a crippling effect on your business. When an architecture firm isn’t paid on time, it can’t take on new projects, hire new employees, or scale very well. And nonpayments can negatively affect the company’s finances.

7 tips for avoiding past due invoices

It takes the average small business 21 days to get paid. And 81% of small business invoices are 30 days past due, according to Fundbox.

Past due invoices may seem like a fact of life, but with a little preparation, your firm can reduce the frequency and impact late payments might have.

Consider these 7 tips to avoid late payments:

1. Watch for Red Flag Clients

They always give themselves away, even if we decide to overlook the signs in an effort to get a new client signed. They’re overly focused on price or poorly organized. Or worse, they have a generally unpleasant attitude that’s going to make working with them difficult.

These are the kinds of clients with a high likelihood of not paying on time. Your best strategy is to avoid them if possible. Weigh how well this potential client fits into your firm’s goals against their potential maintenance costs, including late payments. Billing and invoicing software, such as BQE Core, keeps records of payment history, key historical data and account notes to quickly find which clients have outstanding invoices.

If you decide their potential outweighs the risks, you can use many of the other strategies discussed here to mitigate the challenge.

2. Eliminate Missing, Confusing, or Ambiguous Information in Your Invoice

At the start of the relationship, have clients specify what information they need on their end to pay an invoice. Do they need a certain office street address on it, rather than one of their others? Do they have an internal PO number that’s required? Who should be getting your invoice to get it processed?

Make your invoice information clear as well. Avoid terms that need interpretation, like “net 30.” Instead, specify the exact due date so there’s no confusion. Make sure the bottom line total and line items are easy to find and understand. It should be easy for the client to understand exactly why they’re getting billed the bottom line amount.

Eliminating confusion ahead of time will ensure both you and your client have a clear understanding of next steps and ramifications if anything goes awry down the line.  

3. Consistently track payments and account notes

You should always maintain a detailed record with account notes for every client. A client may pay late once, but clients that consistently pay late should be a red flag. Tracking this information in a simple, easy to access way will help you monitor trends and identify any clients that are causing a repeated headache. 

This data will allow you to identify and make informed decisions about clients with continuously late payments.

4. Customize billing methods

If the client says they have a preferred payment method use — let them use it. You can negotiate your payment method flexibility as part of your service. There are multiple services that allow businesses to accept ACH, credit card, PayPal, or EFT transfers.

Catering to your clients’ needs will make it easier for them to pay on time.

5. Maintain a set billing schedule

By establishing a regular billing schedule, you’ll create a habit that will make clients much less likely to miss a due date. A set schedule will also help you manage your cash flow and make it easy to determine if you have too great a number of outstanding invoices. 

Establishing a schedule will help clients anticipate invoices.

6. Be proactive

Chase late payments early! Don’t let a large number of outstanding billables accrue. If you need to bill a client every two weeks, do it. Changing your billing frequency from bi-monthly to bi-weekly will dramatically speed up cash flow (Related: 10 Easy Tips to Boost Your Business Cash Flow).

You should also consider automated reminder emails with preemptive warnings. Clients will appreciate the early warning, and automating this process takes the pressure off of your staff. 

Prompt actions can help give you enough time to resolve the situation. 7. Use the ‘carrot and stick’ approach

Demand interest on late payments and reward customers who always pay on time (or early). Consider offering a 2% discount to your clients if invoices are paid prior to the due date. Many businesses have policies that require them to take advantage of discounts when offered by vendors for early payment.

Giving an early payment discount (no matter how small it is) provides an incentive for your clients to pay quickly. 

Technology can cut your billing time in half

The good news is, there are a lot of great technologies available to help businesses process invoices efficiently. In an interview with PYMTS, Fundbox VP of Marketing Jordan MacAvoy says:

“Electronic payments, once an invoice is approved to get paid, are a great way to reduce, by a week or so, the time it takes small businesses to get paid, as opposed to something that goes through paper mail.”

But expediting invoicing is just one part of a seamless billing process. You should consider using software that helps you with the entire billing process.

Core Billing software can cut your billing time in half and improve cash flow. It allows you to bill the way you want with a variety of billing methods. It’s possible to bill one client hourly, another client fixed fee, and another on retainer.

And if you need help remembering when to bill, you can also process bills in batches or automatically on a pre-set schedule. Plus, Core tracks payment history, key historical data, and account notes, so you can make informed decisions based on data.

Other features include the ability to:

• Tailor communications with customizable invoice templates

• Send multiple invoices in a single email

• Choose from automatic billing methods like automatic, progress, manual and more

Past-due invoices are not inevitable. With the right preparation, you can prevent late invoices from hurting your business. Get ahead of the curve and set your business up for success with Core Billing. Click here to learn more.