The first obvious thing to check for, is that your income is sufficient to match your outgoings. As a sole trader, this will not include your business expenses but also your mortgage and regular monthly household expenditure.
Failing to check this, before handing in your resignation and going it alone can leave you in a very dangerous situation. One delayed payment can cost you fees at the bank, an ability to buy stock or pay staff, or could even result in your company going bust or losing your house.
Here are a few key areas to check to make sure your invoices get paid on time:
- Keep records. When you only have one or two clients, it may seem easier to do everything from memory but once business picks up, it is easy to lose track of invoices and payment due dates.
- Invoice promptly.As soon as work is signed off or goods are collected or despatched, create an invoice. If cashflow is such that you need payments promptly, specify this in your invoice.
- Your invoice must include all the necessary information to enable your client to pay you. Ensure that your company number, VAT Number, Address and Phone Number are included and that the invoice clearly states what it is for. This prevents any unnecessary delay.
- If you are extending credit terms, agree the terms of the agreement up front and re-state them on the invoice so that there can be no quibbling once goods or services are received.
- Make sure you have the right email or address to send the invoice to. A company cannot pay an invoice which has landed in their spam folder. If you have a contact within the organisation cc them in with the invoice so that they know you’ve invoiced the company and can correct any typos you may have made in the accounts payable email address.
- As soon as an invoice is due, chase it. Don’t wait until several months later. If it is not possible to chase each and every one each day, set aside a day each month to chase them so they do not go unpaid.Don’t be afraid to be confident when chasing payment. I f you have provided a service or goods to an acceptable standard, your client has no good reason to not pay up.
- Make it as easy as possible for customers to pay you. Electronic BACS or Faster Payment is by far the most convenient means of payment in business. Insisting on cheques or cash can mean a company will not prioritise your payment.
However, if you chase a payment and it can be authorised there and then over the phone by card or via their internet banking, in most cases companies will be happy to resolve the issue immediately.
Whilst accepting card payments will likely involve a setup and hosting charge from the provider, if doing so means your customers are willing and able to pay on time, it may be an expense worth considering.
23 September 2019
At Clarkson Accountancy we have been advising businesses large and small for over 12 years and our many clients appreciate the personal service and industry insight we bring. To speak us about invoicing, bookkeeping or any other accountancy service please contact us at firstname.lastname@example.org or call 01283 537108.