Given the high level of interest in this subject I’ve search around for some ‘real world’ examples and best practice for getting paid as quickly as possible.
Here’s what I’ve found:
- Most business spend very little time on how their invoice is set up.
- Studies and tests have shown that there can be significant differences in how long it takes to get paid on average between one invoice layout and wording and the next.
This is really important for any business that invoices for their products or services and struggles with collecting payment. Tests and experiments into this area have proven that the wording and terms on your invoices, as well as the layout, can make a big difference in how quickly you get paid.
Here are some little know secrets to invoicing that you can apply right now:
Studies show that polite wording on an invoice can increase the percentage of invoices that are paid by as much as 5%! That’s massive for some businesses where payment chasing is a major resource drain.
It also gets you paid faster on average. Who would have thought that a simple ‘thank you for your business’ or ‘please pay your invoice within’ could make such a difference.
21 days to pay
The wording of your payment terms makes a difference! You should avoid using the word ‘net’ (eg. payment terms are net 30 days). Instead, use the word ‘days’, which is more easily interpreted and understood by less business-savvy clients.
Also, don’t use the words ‘payable upon receipt’ as tests show that this is interpreted by many clients as ‘pay whenever you feel like it’. Instead, use specific terms such as ’21 days’ to focus your client’s mind on a specific timeframe.
Interesting fact – tests showed that the wording ‘payable in 21 days’ collected more money on average than asking for immediate payment, or for asking for payment within any other time period.
Should you charge interest on late payments?
This is a really interesting area. Without getting into all the details, tests show that charging interest on late payment has two outcomes – it gets you paid slower, but also gets a higher percentage of invoices paid. It seems when clients see the interest charge, they immediately assess the invoice like a credit card statement – something to be put off to the last minute.
So, if you want the optimal invoice terms on your invoice, consider using ‘Thank you, we really appreciate your business. Please send payment within 21 days of the invoice date.’
Or if you really need to drag in every last penny and can manage cash flow over a slightly longer period:
“Thank you, we really appreciate your business. Please send payment within 21 days of the invoice date. There will be a 3% interest charge per month on late invoices.”