6 min read
Welcome back to Back to Basics - a refreshing revisit of some of the core foundations of credit control. This week we're continuing with the fantastic series The 7 Habits of Highly Effective Invoices, to revisit and refresh on the basics of how to get invoices paid on time. Over the coming weeks, we’ll continue to explore a new habit from the series each week.
Last week we explored the "why" behind the credit control mantra polite persistence pays. This week we dive into Part 2: The "How".
An invoice has one purpose, and one purpose alone: to get paid on time.
At Chaser, we’re nuts about getting invoices paid on time. Welcome back to The 7 Habits of Highly Effective Invoices, our series on the most valuable things an invoice can do to get paid on time. These are taken from our Founder & CEO David Tuck’s experience working as a Finance Director and Accountant.
Turning the wish into reality
In our last post we covered the “why” of mastering the 3 Ps - polite, persistence pays. We hope we made a persuasive case for why they are so important when it comes to getting your invoices paid on time. But in the words of Antoine de Saint-Exupery, the pioneering French aviator: “a goal without a plan is just a wish.” We can never know what was going through his mind when he uttered those words. As a man who granted likely knew very little about effective invoicing, it’s probably a stretch to think that he was thinking about the 3 Ps. But he may as well have been. For appreciating the “why” of the 3 Ps without the “how” of carrying them out effectively is just a wish. Granted a pretty amazing invoice shaped one, but a wish nonetheless.
In this second part of Habit 6 we want to turn that wish into reality. To do that we’re very excited to bring you habits within habit. The “how” of mastering the 3 Ps. With our habits of highly effective chasing.
Photo by Marina del Castell / CC BY
The 7 Habits of Highly Effective chasing
Habit 1. The first thing to cover is what communication medium(s) we should use for chasing. We look at chasing like a sales funnel. All of your invoices go in at the top. Email is your first line of attack. In our experience, email chasing is a hell of a lot more effective that a lot of people assume. We’ve found that about 80% of invoices can be successfully collected through email chasing alone. For the remaining 20% you are going to want to get on the phone. And then in really extreme cases (very very rare where you have good chasing processes in place) you will need to escalate through legal channels.
Habit 2. The second point is around regularity of chasing. We know a lot of small businesses who have previously done their chasing in every-couple-of-months frantic bursts (as an aside, if that’s you - please don’t feel like you were the only one!). It’s really important you chase more frequently than this; ideally weekly. This way you’re projecting competence to your customers that you are on top of your invoices. That you know what is due when. That you are (in a hopefully completely non-Mafioso way!) not to be messed with.
Habit 3. Start early. Don’t assume you have to wait until the invoice is overdue to start chasing. Sending a chaser a week before due date can be a great way to start the chasing process. You can remind your customer payment will be due next week and get a commitment from them that everything is on track for payment. Don’t underestimate the power of this commitment in meaning that your customer will then feel compelled to pay you on time. One caveat with starting early: it depends on your payment terms. If due date is 14 days or less, chasing before the due date can often be too soon after the invoice has been sent in the first place. But if your payment terms are longer than that then a before-due-date chaser can be extremely useful.
Habit 4. Who should do the chasing? First and foremost it needs to be someone who has the time to do it with sufficient regularity, which will potentially not be the SME business owner. It should also be someone who has a relationship with that particular customer. Where a business has a sales team, it can often be beneficial to have each sales team member chase their respective customers. Particularly so if you can link their sales commissions to successful payment of customer invoices. This can be a great goal-congruent way of aligning chasing motivation.
Habit 5. Also look at building in escalation points to your chasing. In David’s last job as an FD they were a two-person finance team. Livi, as accounts associate, was primary point person when it came to chasing. With David as an escalation point to politely cage rattle in the event that an invoice was still paid 2-3 weeks after due date.
Habit 6. When email chasing your customers, it’s brilliant to be sending out your regular weekly chasing emails. But what will so often happen is that 3-4 days, even a week, will go by before your customer responds saying that they need a copy invoice before they can make payment. Whether this is genuine or simply an opportunistic delaying tactic is a topic for another day. But the key thing to take away is: make sure to attach copy invoices to your chasers in the first place to neutralise this potential delay.
Habit 7. Finally, think about the timing of your chasing. A key thing to bear in mind here is when your customers make their payment runs. In our experience most businesses tend to make payment runs at the end of the week. It’s a balancing act. You want to chase as close as possible in advance of them making their payment run so you are front of mind and have maximum impact. At the same time, you don’t want to leave it so late that the payment run has already been made.
That’s the 3 Ps
That completes your mastery of the 3 Ps. We really hope you’ll enjoy putting them to good effect and will notice the difference they make to your cashflow. That concludes the penultimate habit of highly effective invoices.
Stay tuned for the finale in Habit 7: Grateful Receipt.
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