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Why Payment Terms Are So Important for Small Businesses

Let’s face it, running a business is hard — and keeping your finances straight is even harder.

In a perfect world, when you send your customer an invoice, they would pay it immediately. 

 

The quicker those funds are in your pocket, the quicker you can invest them into growing your business. However, as we know, this is hardly ever the case. 

 

In fact, research has shown 62% of invoices take 60 days or more to be paid. And only 6% of invoices are paid in under 30 days. For this reason, many businesses try to avoid the waiting game by dating an invoice, “due upon receipt.” 

 

  • The bad news is…not specifying an actual deadline can backfire, especially if you want to sell that invoice.
  • The good news…there is an alternative solution where you can get paid on time AND make the invoice more appealing to sell.

 

Keep reading to learn the best ways small businesses can maintain cash flow and get customers to pay their bills promptly.

 

Avoid Using “Due Upon Receipt” – Here’s Why

There are many different payment terms businesses set with their customers. For example, perhaps you’ve agreed upon 30, 60, or even 120 days until payment is due. While these payment plans are pretty common, oftentimes, customers do not stick to these previously agreed terms. 

 

It seems like common sense: when you send an invoice, you want it paid quickly, or at the very least, on time. Therefore, to speed up the process, some businesses choose to label their invoices as “due upon receipt” or “due immediately.” 

 

The issue with this approach is that when you date an invoice as payable upon receipt on the Crowdz platform, the invoice is automatically past due as soon as the customer receives it. As a result, this can be detrimental to businesses that want to sell their invoices. 

 

This can be detrimental to businesses that want to sell that invoice because it is no longer available to purchase.. As a result, you will not have the opportunity to place your invoice up for funding 😥 The minimum terms for selling on the Crowdz platform is that the invoice has to be no less than 15 days until due for payment. This means you must date an invoice so that it is at least 15 days due from the date it was created. 

 

Wait…what does it mean to sell an invoice?

 

Selling an invoice on the Crowdz Marketplace is simple. Users upload a copy of the invoice they need an advance on, and Crowdz shares it with hundreds of lenders who will effectively purchase it and payout cash immediately.

 

How to Actually Get Paid Quicker

So how do we fix this? There is a resolution where you can get paid on time while also making an invoice more attractive in the eyes of investors. Here is an example of how to accomplish this with Crowdz.

 

Step #1. Navigate to “Sell Receivables” on the left side bar

Step #2. Click the + on the upper right-hand side

Step #3. You can select “Upload Individual Receivable” or “Upload Multiple Receivables”

 

Step #4. On the right-hand side of the form, you’ll enter receivable information including the due date. Remember! If you want to sell an invoice, and it is past due, it is not possible to sell to investors. Therefore labeling invoices as due upon receipt, while may put pressure on customers, will also kill your chances of getting paid from lenders.

 

If you integrate your accounting software with the Crowdz platform, you must change the due date of the invoice in the accounting system to reflect on the platform.

 

Choosing a date for your invoices. 

Let’s say you own a marketing agency. You have a longstanding client that pays vendors the third Monday of every month based on past transactions and conversations. 

 

Therefore, you create your invoice to reflect this due date instead of due upon receipt. As a result, you can leverage the remaining time to sell your invoice to interested buyers who will pay it almost immediately. 

 

Doing so eliminates relying on customers to pay 30, 60, or 90+ days when you’ve already done the work. In other words, you’re able to get paid for your services as soon as you’ve completed a project. As a business owner, you have hundreds of other responsibilities that should not include chasing customers for payment. 

 

Selling your invoices can take the pressure off of yourself and your customers so you can get back to focusing on what matters most: growing your business and strengthening those relationships.

 

Avoid Other Common Invoicing Delays

While selling your invoices can be a great way to get paid immediately for your services, it is not the only way to speed up payment times. Even if you have an agreed-upon payment schedule with your customers, we hear about common barriers to getting paid on time every day. 

 

Below are some issues that could cause your business to receive slow payments. 

 

The invoice was sent to the wrong contact.

Often the person you are conducting business with is not the person responsible for sending payments. For instance, let’s go back to the previous example of owning a marketing agency. 

 

Perhaps you redesigned a new website for a gym and often consulted with the gym’s marketing manager on the project. You sent the invoice to the marketing manager when the website redesign was complete because he/she was your primary contact. 

 

However, the marketing manager never forwarded the invoice to the accounting department, who is actually responsible for overseeing vendor payments. To avoid this, always ask your client whom to send invoices before starting the project.

 

Payment terms were not clearly defined. 

Here is a scenario we hear about a lot from small businesses. Say you think an invoice should be paid within 45 days of processing, but a customer doesn’t think they should have to pay until the project is finished. That’s a big point of miscommunication, right? 

 

To avoid an uncomfortable conversation down the line, make sure customers agree to your terms before working on the project. One step further, the payment plan should be agreed upon in writing to cover all of your bases. 

 

The invoice was sent at an inconvenient time.

It seems silly, but sending an invoice during off-business hours can result in slow payments. For example, if your accounting system is scheduled to send invoices every 30-days, it is possible that the date could land on a Saturday or Sunday. 

 

In this case, the email could get lost in your client’s inbox when they return to the office on Monday. Therefore, it can be very helpful to ask your clients ahead of time what day is best for them to receive invoices to get a speedier payment. 

 

Tell Me More, Tell Me More

Are you looking for more financial advice? Then, you’ve come to the right place. Crowdz is always sharing great business tips and strategies to help startups grow. Check out our blog and sign up for our free-to-subscribe newsletter to stay on top of new features and all our best advice.

By Sarah Wyman

January 7, 2022

Share this article

Blog

Why Payment Terms Are So Important for Small Businesses

Let’s face it, running a business is hard — and keeping your finances straight is even harder.

In a perfect world, when you send your customer an invoice, they would pay it immediately. 

 

The quicker those funds are in your pocket, the quicker you can invest them into growing your business. However, as we know, this is hardly ever the case. 

 

In fact, research has shown 62% of invoices take 60 days or more to be paid. And only 6% of invoices are paid in under 30 days. For this reason, many businesses try to avoid the waiting game by dating an invoice, “due upon receipt.” 

 

  • The bad news is…not specifying an actual deadline can backfire, especially if you want to sell that invoice.
  • The good news…there is an alternative solution where you can get paid on time AND make the invoice more appealing to sell.

 

Keep reading to learn the best ways small businesses can maintain cash flow and get customers to pay their bills promptly.

 

Avoid Using “Due Upon Receipt” – Here’s Why

There are many different payment terms businesses set with their customers. For example, perhaps you’ve agreed upon 30, 60, or even 120 days until payment is due. While these payment plans are pretty common, oftentimes, customers do not stick to these previously agreed terms. 

 

It seems like common sense: when you send an invoice, you want it paid quickly, or at the very least, on time. Therefore, to speed up the process, some businesses choose to label their invoices as “due upon receipt” or “due immediately.” 

 

The issue with this approach is that when you date an invoice as payable upon receipt on the Crowdz platform, the invoice is automatically past due as soon as the customer receives it. As a result, this can be detrimental to businesses that want to sell their invoices. 

 

This can be detrimental to businesses that want to sell that invoice because it is no longer available to purchase.. As a result, you will not have the opportunity to place your invoice up for funding 😥 The minimum terms for selling on the Crowdz platform is that the invoice has to be no less than 15 days until due for payment. This means you must date an invoice so that it is at least 15 days due from the date it was created. 

 

Wait…what does it mean to sell an invoice?

 

Selling an invoice on the Crowdz Marketplace is simple. Users upload a copy of the invoice they need an advance on, and Crowdz shares it with hundreds of lenders who will effectively purchase it and payout cash immediately.

 

How to Actually Get Paid Quicker

So how do we fix this? There is a resolution where you can get paid on time while also making an invoice more attractive in the eyes of investors. Here is an example of how to accomplish this with Crowdz.

 

Step #1. Navigate to “Sell Receivables” on the left side bar

Step #2. Click the + on the upper right-hand side

Step #3. You can select “Upload Individual Receivable” or “Upload Multiple Receivables”

 

Step #4. On the right-hand side of the form, you’ll enter receivable information including the due date. Remember! If you want to sell an invoice, and it is past due, it is not possible to sell to investors. Therefore labeling invoices as due upon receipt, while may put pressure on customers, will also kill your chances of getting paid from lenders.

 

If you integrate your accounting software with the Crowdz platform, you must change the due date of the invoice in the accounting system to reflect on the platform.

 

Choosing a date for your invoices. 

Let’s say you own a marketing agency. You have a longstanding client that pays vendors the third Monday of every month based on past transactions and conversations. 

 

Therefore, you create your invoice to reflect this due date instead of due upon receipt. As a result, you can leverage the remaining time to sell your invoice to interested buyers who will pay it almost immediately. 

 

Doing so eliminates relying on customers to pay 30, 60, or 90+ days when you’ve already done the work. In other words, you’re able to get paid for your services as soon as you’ve completed a project. As a business owner, you have hundreds of other responsibilities that should not include chasing customers for payment. 

 

Selling your invoices can take the pressure off of yourself and your customers so you can get back to focusing on what matters most: growing your business and strengthening those relationships.

 

Avoid Other Common Invoicing Delays

While selling your invoices can be a great way to get paid immediately for your services, it is not the only way to speed up payment times. Even if you have an agreed-upon payment schedule with your customers, we hear about common barriers to getting paid on time every day. 

 

Below are some issues that could cause your business to receive slow payments. 

 

The invoice was sent to the wrong contact.

Often the person you are conducting business with is not the person responsible for sending payments. For instance, let’s go back to the previous example of owning a marketing agency. 

 

Perhaps you redesigned a new website for a gym and often consulted with the gym’s marketing manager on the project. You sent the invoice to the marketing manager when the website redesign was complete because he/she was your primary contact. 

 

However, the marketing manager never forwarded the invoice to the accounting department, who is actually responsible for overseeing vendor payments. To avoid this, always ask your client whom to send invoices before starting the project.

 

Payment terms were not clearly defined. 

Here is a scenario we hear about a lot from small businesses. Say you think an invoice should be paid within 45 days of processing, but a customer doesn’t think they should have to pay until the project is finished. That’s a big point of miscommunication, right? 

 

To avoid an uncomfortable conversation down the line, make sure customers agree to your terms before working on the project. One step further, the payment plan should be agreed upon in writing to cover all of your bases. 

 

The invoice was sent at an inconvenient time.

It seems silly, but sending an invoice during off-business hours can result in slow payments. For example, if your accounting system is scheduled to send invoices every 30-days, it is possible that the date could land on a Saturday or Sunday. 

 

In this case, the email could get lost in your client’s inbox when they return to the office on Monday. Therefore, it can be very helpful to ask your clients ahead of time what day is best for them to receive invoices to get a speedier payment. 

 

Tell Me More, Tell Me More

Are you looking for more financial advice? Then, you’ve come to the right place. Crowdz is always sharing great business tips and strategies to help startups grow. Check out our blog and sign up for our free-to-subscribe newsletter to stay on top of new features and all our best advice.

By Sarah Wyman

January 7, 2022

Share this article