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Invoicing and debt recovery are essential components of managing your business’s cash flow. Without money coming in, you cannot cover your business expenses or repay your loans. Whether you are a sole trader or you run a company, you should put processes in place for keeping a steady flow of income coming in and maintaining a positive cash flow. This article shares some tips and best practices to help you get paid on time in New Zealand. 

What Is Cash Flow Management and Why Is it Important?

Cash flow is the movement (or flow) of money in and out of your business. Your cash flow can be positive or negative, depending on whether your cash receipts are higher than your expenses. 

Without cash, your business cannot pay creditors, employees or investors. Even when your sales numbers are strong, if you do not collect your accounts receivable, you will have no money to pay your outgoings or finance your operations. Therefore, it is essential to get paid on time for the survival of your business.

1. Provide a Cost Estimate Upfront

If you supply services, you should provide a cost estimate to your clients before completing your work. A cost estimate gives clients an idea of how much your service will cost. This will help you set expectations with your clients early on and reduce the chances of a cost-related dispute. 

Even though you are estimating the cost based on your skill and experience, you must try to keep the final price within 10-15% of the estimate. Therefore you must be careful when you calculate it and cannot set your cost estimate too low to try to win a customer.

You can provide your estimate verbally or in writing, and you should include:

  • what work you will carry out;
  • additional costs, such as materials;
  • your hourly rate; and
  • how long the job will take.

2. Shorten Your Payment Terms and Offer Discounts for Early Payment 

Your invoice payment terms specify how and when you expect to receive your payment. With most businesses sending invoices electronically, standard payment terms have shortened from thirty to seven-fifteen business days. 

If you provide short payment terms (seven days), on average more customers will pay late. However, you will still get paid sooner than if you allow your customers three or four weeks to pay. Depending on the cost of your goods or services, you should ask for payment within two weeks, unless you are invoicing large amounts. 

For longer payment terms, you should offer discounts for early payment. A standard discount is 2% for payment terms of thirty days. You can also charge late payments fees. However, you must tell your customer about it before you enter into an agreement. This includes verbal agreements, emails or basic written quotes. In addition, your fee must be reasonable as the Consumer Guarantees Act and Fair Trading Act protects your customers against unfair payment terms.

3. Send Your Invoice as Soon as Possible

You should send your invoice as soon as you have fulfilled your obligations. If you sell products, this generally occurs when you deliver the product(s) to your customer. If you provide services, once you complete the work. The sooner you invoice your customer, the sooner you will get paid. 

If you are carrying work over an extended period, you can split the total invoice into multiple payments to keep the money coming in and offset some of the risks to your business.

You should keep records of who owes you money to make it easier to chase outstanding invoices. To streamline your invoicing process, you can use templates, an accounting software, send online invoices or e-invoices (this is one of the advantages of registering with the NZBN). Another key benefit of invoice automation is reducing manual data entry.

4. Offer Flexible Payment Methods

Putting yourself in your customer shoes is not only crucial from a marketing perspective but also if you want to get paid promptly. If you offer flexible ways to pay, your customers can use their preferred payment method, which makes it more convenient for them and in some instances, reduces processing times. Some popular payment methods include:

  • ‘pay now’ using a credit card; and 
  • add-ons, such as Stripe or PayPal.

5. Chase Your Debtors 

You should put a process in place to follow up with customers that do not pay on time. For example, you should keep a record of outstanding invoices and how long they are overdue. This is known as account receivables ageing. Your accountant can help you find a service and online tool to improve your invoice management process and reduce human error.

Once your invoices become overdue, you should:

  • contact your customer by email and (or) phone within a week of the due date; 
  • send them a few brief and courteous late payment reminders; 
  • offer them the option to pay in instalments; and 
  • engage a debt collection agency (or you can sell the invoice to them) or make a claim at the Disputes Tribunal. 

Key Takeaways 

Getting paid on time is crucial for your business because it allows you to pay your bills and finance your operations. Therefore, you should put processes in place to streamline your invoicing process and ensure you receive payment from your customers on time. For example, you should: 

  • provide cost estimates before carrying out your work;
  • shorten your invoice payment terms to fifteen days;
  • send your invoices as soon as possible, after completing your work or delivering your goods;
  • offer flexible payment options such as ‘pay now’, Stripe and Paypal; and 
  • send payment reminders and follow up overdue payments.

If you need help to understand your obligations under New Zealand consumer laws or someone to represent you in a dispute, LegalVision’s commercial lawyers can help. Call 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is the difference between an invoice and an estimate?

When you provide services, you may not always know in advance the exact cost of your labour and materials. Therefore, you can use your skill and experience to provide rough guidance on the cost to your clients. Once you complete the services, you should invoice them as soon as possible with a breakdown of the actual price. Generally, invoices represent a request for payment under a contract, and therefore your clients are required to pay it. Estimates usually are not binding, but this depends on whether an offer has been accepted.

How do you get your customers to pay their invoices?

Some tips that can help you get paid faster include shortening your payment terms, sending your invoices as soon as you complete your work, offering flexible payment methods and discounts for early payment. Providing a cost estimate upfront can help your customers budget for the final bill, so there are no surprises. It is essential to have good invoice processing practices in place.

How long should you give someone to pay an invoice?

Typically between twenty-one and thirty days. However, with the increase in the use of electronic invoices, standard payment terms have shortened to seven-fifteen business days.

How do you chase debtors?

The first step is to have an accurate record of your debtors and their invoice due dates. Once the invoices become outstanding, follow up with your debtors as soon as possible. Be courteous, to begin with, and offer them the option to pay in instalments. If this does not resolve the issue, you can engage a debt collection agency or discuss your options with your lawyer.

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