Do you have issues receiving early payments for your products and services? Studies show that 11% of invoices sent from small businesses to customers are not paid on time. This could be a result of not knowing when invoices are due.
Including the due date is not a compulsory detail to include in your company’s invoices, but it is recommended. Setting a due date lets you know when an invoice is due and encourages clients to make payments within the set time.
The impact of late and overdue payments means you would have to spend resources to track down erring customers for the money they owe you. When you cannot trace these payments, they would be written off as bad debt – which can restrict the cash flow in your business.
To avoid overdue payments, you need to know when invoices are due and when they need to be paid.
When are Invoices Due?
Typically, payment is due at the end of the month when the customer receives the invoice, but you can make and state the due date of your business’s invoice agreements. A solution to knowing when accounts are payable and avoiding payment conflicts is to set clear terms in the agreement, such as:
Due Upon Invoice Receipt
This term signifies that customers must pay their bills immediately after receiving the invoice. The payment term is perfect for one-time customers and new clients since they may not have recurring payments from your company. You should include this detail in the contract’s terms if you want to accept payments the next business day after receipt of the invoice.
The payment has some advantages, such as:
- It increases the cash flow to your business within a short period.
- You get a quicker payment turnaround that helps your company avoid financial crises.
- As a business owner, losing track of outbound invoices is easy due to the daily volume of activities you conduct and oversee. So, this method decreases the chances of forgetting about tracking and collecting payments.
- You wouldn’t have to track payments and continuously chase clients down for payment collection.
2% of Net Payment Period
If the customer pays within 10 days of a Net 30, 60, and 90, they will get a 2% discount. For example, clients may pay $480 for a service that initially costs $500. This encourages clients to make early payments. When customers don’t settle the bill within the time frame, they will pay the total amount within the initial invoice due date.
Include this in the agreement if you want the customer to make payment within seven days following receipt of the contract.
The customer must pay for your services 10 days after the invoice date. You can also include the penalties they should expect when they fail to complete the bill within the time frame.
15-Month Following Invoice (MFI)
This means payment is due every half month or on the 15th of every month when the customer receives an invoice notification. This agreement term gives a discount or incentive upon receipt of payments before the due date.
The customer must pay for your services 10 days after the invoice date. With this payment term, you can include details about late payment penalties and charges.
Clients must settle their bills within 30 days from the invoice issue date. If they can’t, they must give you a reason before the due date.
The client must make payments within 60 days from the invoice date.
Including this term means the customer must pay you within 90 days from the invoice date.
50 Percent Upfront Payment
The customer must pay 50 percent before the start of a project or the completion of a service.
End of The Month (EOM)
When you include an EOM in the contract, you are telling the client that they should pay for your services at the end of the month they receive the invoice.
Line of Credit
Credit pay allows clients to make payments over some time. Usually, you will discuss with the customer to set a time frame.
Payments In Advance (PIA)
Setting an advance payment is recommended if you’re working on a project for your client. The client could pay a certain percentage of the total package and complete the payment after completing the project. You can include a “Cash in Advance” option to specify how you want the client to pay you before and after completing a project or service.
When Do They Need to Be Paid?
After the customer has confirmed receipt of the contract, they must follow the terms of the agreement and remit payments before or on the due date. Sometimes, a customer may find it challenging to locate the invoice date on the contract. If they do, it may not be easy to calculate the payment due date based on the agreement’s payment terms.
In some cases, the invoicing system reverts to the latest date as the date an invoice was issued. It combines this with the payment details to automatically calculate the due date. With these factors in mind, there is a good chance you will receive late payments due to a wrong date.
Key Points to Note When Setting a Due Invoice Date
It is essential to keep a few things in mind when setting up a due date to ensure you don’t encounter issues:
- Clearly state the year, day, and date. Without the complete information, the due date could be misinterpreted by clients.
- State the date you issued the invoice in full. It would help the client to calculate the correct due date.
- Always include full details about invoice due dates during December. This season depicts the end of the fiscal year for most businesses, so it could be challenging to receive payments or send out notifications.
- Include the due date in a prominent section on the contract using bold and large fonts. To make them scannable, you should explain each piece of information using clear language and business terms. Consider using free templates for invoices to send out bulk invoices that convey your words in intricate detail.
Tips to help you get paid faster
If you are wondering how to get paid faster, you should try the following:
Create a payment plan for clients you bill regularly
If you have clients who frequently make purchases from you, you may need to create a payment plan for them. This helps ensure that they do not default at any time and keeps track of the different payments.
It also makes your invoicing more orderly as you can avoid tracing different invoices, even if they are digital. You may also create specific terms for them to create a personal effect and to enhance the working relationship. For example, a recurring client who prefers to pay when the job is done should have an invoice that details when the work will be done and when payment is due.
Offer multiple payment options.
Sometimes, your payment plans and options may delay your payments. With different payment options springing up by the day, sticking with only one payment option will make things a little more complicated.
Ensure that you have a variety of payment options. The primary payment options are a credit card option, bank transfers and a range of payment gateways like Paypal.
Essential criteria to base your payment option on are who your customers are and what they prefer. For example, if young people make up the most significant number of your customers, it may be harmful not to have digital payment gateways. You will need to allow cash payments if you sell to conservative and older adults.
The same applies to payment plans. You need to make payment plans that accommodate the type of customers that you have. For example, if you have customers struggling with making lump sum payments, you may need to consider a spread payment plan that allows them to spread their payments over a couple of months.
Offering as many options as possible ensures that you get paid as quickly as possible.
Invoice as consistently as possible
When customers know that you have a system that ensures you can follow up on payments, they want to ensure they don’t delay.
A consistent invoicing system also presents your business as serious and wanting to not take a chance on payments. You’ll find that your customers get the message more often than not.
Submit your invoices as early as possible
Unless there’s a contrary agreement, don’t wait until the job is done before you send your invoices to your customers. Invoicing, when down at the right time, makes your payment constantly at the top of your customer’s mind. This way, they bear it in mind and are less likely to forget and delay making the payment.
Also, early invoicing ensures you can avoid any disagreement on payment when the job is completed, as it’s best to resolve issues before the job is completed.