You’ve probably heard it before…but receiving payments on time is the biggest obstacle most sole traders face.
It really doesn’t matter how wonderful your service is or how loyal your clients are. If money owed doesn’t reach your bank account when it should… your business quickly starts to feel the pinch. Late payments affect everything from cash flow to business growth.
Even worse…
It’s completely avoidable. Most late payment issues can be resolved with a well-oiled accounts receivable management system. One that is:
- Easy to implement
- Simple to maintain
- Proven to work
What’s inside:
- Why Late Payments Will Crush Your Sole Trader Business
- Accounts Receivable Management Explained
- Set Crystal Clear Payment Terms
- Automate The Billing Process
- Follow Up On Late Payments The Right Way
Why Late Payments Will Crush Your Sole Trader Business
Not only are late payments super frustrating…they can also put your sole trader business at risk.
Simply because sole traders don’t have large reserves of money to draw from.
If a client happens to pay 30, 60, 90 days late… that money needs to come from somewhere. Bills still need paying. Suppliers expect their cut. The government definitely won’t wait.
And they’re not alone.
Research carried out by FSB discovered that almost half (45%) of small businesses stated they’re experiencing more late payments than they were 12 months ago.
That means nearly half of ALL UK small businesses are struggling to beat late payments.
Who is it affecting?
Hiscox conducted research that revealed SMEs chase an average of 14 late payments per year. The researchers went on to say this equates to SMEs waiting 331 days per year on late payments.
Imagine that.
If you’re a sole trader with zero employees…that’s a significant chunk of your time gone just chasing after money that’s already owed to you.
The harsh reality? If you don’t have an effective accounts receivable management strategy… you’re putting your business at serious risk of cash flow problems.
Accounts Receivable Management Explained
Accounts receivable management refers to the practice of tracking and collecting money owed to a business.
For sole traders, this means implementing a simple process for managing everything from issuing invoices to chasing late payments.
Quality accounts receivable management systems that support easy invoicing with Prime Software remove the guesswork and make it easy to keep on top of your invoices at all times.
The concept is pretty simple… But you’d be surprised at how many sole traders have no process in place.
And that’s a problem.
Implementing a robust accounts receivable management process allows sole traders to:
- Keep track of who owes money
- Send invoices faster
- Follow up on late payments automatically
Without something as simple as this in place…sole traders find themselves spending unnecessary hours chasing payments manually. Time that could be spent doing actual work for clients.
Set Crystal Clear Payment Terms
There’s one simple thing most sole traders fail to do when it comes to accounts receivable management.
Define payment terms. Putting payment terms in place before work starts is one of the easiest ways to have invoices paid on time. And yet, so many businesses skip this step.
Every invoice should include:
- A clear cut due date
- Accepted payment methods
- Late payment fines (if applicable)
Why? When clients have clarity on when and how to pay… invoices get paid faster. There’s no guessing which means both parties can set professional expectations from day one.
Pro tip: Payment terms can be as quick as Net 7. Don’t be afraid to ask for money fast.
Automate The Billing Process
Here’s a secret that can help reduce late payments…
Automate the billing process. If invoices need to be marked as paid on time, it’s essential to make it easy for clients to pay. And that means accounts receivable management starts with automation.
Here’s how automating invoices helps sole traders:
- Spend less time creating and sending invoices
- Invoice accurately every time
- Get paid faster
Manual invoicing is a HUGE time-waster. It’s tedious, prone to human error and it’s easy to forget about. Automating invoices takes care of all these problems.
The bottom line? Sole traders who automate their invoicing process never have to worry about chasing payments again. The system does all the heavy lifting.
Oh and…
Most online invoicing tools these days are affordable. Some are even free. There’s no excuse not to be using one as a sole trader.
Follow Up On Late Payments The Right Way
Yes, even the best accounts receivable management system won’t stop all clients from paying late.
It’s an unavoidable fact of running a business. However, there is a right and wrong way to chase up these late payments.
The wrong way: Sending a passive aggressive email two months after the invoice is due.
The right way: Having an automated follow-up process for when invoices become overdue.
Implementing this simple overdue invoice process will ensure payments arrive on time:
- Day 1 (invoice is overdue): Send a polite email to the client reminding them the invoice is now due.
- Day 7: Send a second email reminding them of the invoice. Attach the invoice again.
- Day 14: Place a phone call. Sometimes a personal phone call can work wonders.
- Day 30: Send the client a formal letter of non-payment.
Repeat this process for any invoice that becomes overdue and payments will arrive on time. Simple.
One last thing: Make sure to keep records of any late payments and follow ups. Should things escalate you’ll be thankful those notes exist.
Wrapping Up
Receiving payments on time as a sole trader should not be an everyday battle.
By having a solid accounts receivable management process in place, the stress of chasing clients disappears. It also puts the business in a position to thrive.
Need a recap? Here are the key takeaways:
- Late payments are occurring more often for sole traders
- Accounts receivable management is critical for cash flow
- Set payment terms before any work begins
- Automate the billing process
- Create an automated follow-up process for overdue invoices
The successful sole traders who ALWAYS get paid on time are the ones with a process in place. So don’t wait any longer. Create your process today.
