The guide to getting your customers paid faster in 2022
Micro businesses represent 92% of all businesses in the United States and, on average, contribute 38% of their owners’ household income. American entrepreneurship remains strong during the pandemic, as shown by the US Census Bureau, which found that 5.4 million new business applications were filed in 2021, surpassing the record set in 2020 by 4, 4 million.
However, millions of small business owners are still struggling to succeed financially, and it’s not due to a lack of skill, passion, or effort.
The ever-changing nature of running a small business means that microbusiness owners have to plan all the more for irregular income, expenses and other financial burdens. Despite this, according to a report by the Center for Financial Services Innovation, the financial health needs of microbusiness owners are most often overlooked. A recent study we conducted at Wave showed that approximately 22% of digital invoices were overdue in 2021, with 70% of respondents waiting one to six months to be paid and 25% waiting more than a year or not getting paid. not pay at all.
Constantly having to chase clients for late payments can be incredibly frustrating, especially if it means covering additional expenses, which can be daunting for contractors who had a different view of the job for themselves. Here are some solutions you can recommend to your clients to increase the speed with which they get paid so they can focus more on what they do best: running their business.
Implement digital payments
Enabling payments is a win-win solution: your clients can track their cash flow, prepare for tax time, and make life easier for themselves and their clients. Implementing digital payments and invoicing is a definite way to get paid faster, and has other benefits as well. Allowing customers to make payments online via a digital invoice means 15.4% more invoices will be paid on time. Linking invoices closely to payment history also makes it much easier to track cash flow and avoid countless headaches at tax time.
Charge late fees
First, it’s crucial for contractors to check how much they can legally charge late fees, as it depends on the country and state they are in. Then they should make sure to inform their regular and future customers of the fees. . These terms should always be explicitly stated in their contract and invoice so that their customers are aware.
Automate and streamline processes
Recommend that your customers set up automatic emails to remind their customers that it’s time to pay or that they have a late payment. Small business owners can also use accounting software to send professional payment reminder emails to customers that are automatically scheduled once they send an invoice.
Use instant payments
If your customers are receiving regular payments, that means they are receiving money through traditional banking methods. With Instant Payments, their money goes through Visa or Plus compatible card networks, meaning they can get paid almost instantly, even if the banks are closed.
Negotiate shorter payment terms
Payment terms refer to the payment agreements made with a customer, including the schedule. Even if your customer has discussed payment terms with your customer, make sure those terms are also at the top of their invoices. They can decide whether they get paid instantly or within a set period of days or months. Although they should consider what the standard ranges are for their industry, it is important to consider their own cash flow needs.
Smaller businesses wait on average more than two months before their invoices are paid, which can lead to significant cash flow problems. If your client has a client who insists on waiting more than ninety days, he shouldn’t be afraid to negotiate.
Use a Small Business Money Management App
With payment technology designed for small business, it’s easier than ever for entrepreneurs to manage their business finances, even when they’re on the go. The use of digital payment apps has accelerated during the pandemic as more small business owners have turned to offering virtual or service-based solutions. According to findings from Apptopia, which studies app usage, usage of popular money transfer apps like CashApp, Venmo and PayPal increased by almost 11% in the first few months of the pandemic.
While these apps are a short-term solution to accelerating cash flow, they lack the essential direct bookkeeping and bookkeeping capabilities that all micro businesses need. Business owners who use Paypal, Venmo, or similar money transfer apps as their primary payment method without an add-on system may be exposed to increased risk and a host of time-consuming manual tasks during tax season.
Our study found that microbusiness owners are increasing the number of invoices they send, a trend that began during the pandemic when more people started their own service businesses. The average invoice value is also increasing, with an increase of 17.1% from 2019 to 2021. Although you ultimately have no control over what your customer does, there are initiatives you can help them implement. work for it to succeed.
David Axler is GM/VP Banking and Books at Wave.