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Invoice Payment Methods For Small Business: How to Get Paid Faster

Invoice Payment Methods For Small Business: How to Get Paid Faster

Invoice

Small businesses may offer their clients different payment options in order to get paid faster for their services and attract new business. It is important for businesses to introduce different payment methods that best work with their business model and meet the needs of their customers. Within the payment terms section of your invoice, you must list the payments accepted by your business. This way, you can avoid the confusion with your client that slows down the payment process. 

What are the different types of payment methods?

Small businesses can offer from a variety of payment methods to receive payment for their invoices they create. Small business administration (SBA) has a guide on kinds of payments you may accept as a small business. Below are some of the common payment methods listed:

  • Cash:

Cash is the most widely used method for a brick-a-mortar store, since there are no transaction fees or processing time associated with it. On the contrary, cash is the least secured payment method. It is vulnerable to theft & loss. Businesses that accept cash are also more likely to have their taxes audited, because there is less of a paper trail associated with cash. If you receive a payment of $10,000 or above, you need to report it to the IRS. 

  • Check:

Check remains to be one of the most popular payment methods for small and service based businesses. They are cheap to accept and less vulnerable to theft unlike cash. Checks are not the secure way of getting paid because you never know if the bank account associated with the check has enough funds to make your payment. If a check you cash gets bounced, it can hurt your cash flow and you might owe fees to your bank. Checks may also take several business days to get clear, you might not get access to your money right away. 

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  • Credit Card:

Credit card is a convenient way of a  payment method that offers a certain level of security protections. To accept payment through a credit card, you need to set up a merchant account in a bank or a payment processing service provider. You will be charged a payment fee every time you accept a credit card payment from a customer. 

  • Bank transfer:

You can request your clients for a direct transfer from their bank account to your business bank account which is also called an ACH credit transfer. To provide your clients with this type of payment method, you need to provide them with some of your banking information including account number and routing. Bank transfers are simple, easy , quick and free to send. They are secured options for accepting payments from your clients. 

  • Online Payments:

You can choose to accept payments from credit or debit cards to let your clients pay you securely and quickly. To accept online payments, you need to first set up an online payment gateway such as PayPal or Stripe. If you use a cloud-based accounting software, you likely have to accept online payments directly through your accounting software. Online payments are quick to process and you may expect it in your bank accounts within a few business hours days. This is also a secured payment method for your clients and your business. You need to pay a transaction fee each time you accept an online transfer payment method. 

  • Mobile Payments:

Mobile payments are an easier payment option for businesses that conduct their work on site, such as landscapers or contractors. For mobile payment methods, you need a mobile payment reader that attaches your smartphone and processes payments through an app such as Square. Mobile payments is the fastest payment option, and you’ll be able to receive it in a few days. You’ll be charged a minimal fee each time you process a payment transaction. 

  • Automatic payments:

If you have a client who pays a set amount in a set schedule, you can accept automatic recurring payments to get paid faster for your services. Automatic payments sets payment charges for a specific amount on a specific date of each month with the client’s permission. It is an easy option for your client, because they can set a payment schedule and forget about it. You can accept auto payments through your accounting software or online payment gateway. 

Also Reads – The Importance of Ethical Accounting

How to choose your payment methods:

All the payment options available for small businesses have certain advantages as well some setbacks. You’ll need to evaluate your options to choose options for the payment methods that work best for your business model. Here are some considerations to take into account when choosing your businesses payment methods:

  • Cost:

When considering  payment methods, evaluate how much it will cost your business to use it. Many of the credit card payments facilities charge a fee for receiving a credit card payment. There are also additional costs associated with payment methods that require hardware, like in person mobile payments and  credit card payments.

  • Security:

You should consider how safe the payment method is, both for you and your clients. Cash offers less security, as it is vulnerable to theft and loss. Online payments are highly secured and encrypt to protect your client and ensure you receive the payment. 

  • Convenience:

Think about the convenience of using each payment method. Checks for instance, will require you to go to the bank and deposit the slip which might take several days to initiate the payment. On the contrary, online payments will not require any of these and your money will be transferred quickly and easily. 

  • Client Preferences:

It is vital to consider your client’s preference when choosing a payment method. You can ask your clients informally about the payment option they consider or send an email or survey to see how they prefer to pay their bills.

What are Invoice Payment Terms?

What are Invoice Payment Terms?

Invoice

Invoice Payments terms are included in the bills that small businesses send out to their clients outlining different payment methods clients can use and how quickly they expect payment for their services. This gives better control to small businesses over their cash flow and helps them plan ahead for their future expenses. 

What are the Payment terms on an invoice?

Payment terms on an invoice indicate small business clients when they are expected to pay the invoice and the different payment methods they may use to submit payments. There are a range of payments terms businesses may use to include in their invoices. 

Below, we have listed different invoice payment terms:

Invoice Payment Term

Term Definition
Upon Receipt This means you expect payment as soon as the client receives the invoice
Net 7 The Payment is due 7 days from the invoice date
Net 21 Payment is due 21 days from the invoice date
EOM Payment is due at the end of the month in which the invoice is received
15 MFI (Month Following The Invoice) Payment is due at 15th of the month following the invoice date. 
PIA (Payment In Advance) You are letting your client know that you expect them to pay the total amount due for a project upfront, before you begin work. 
CIA (Cash In Advance) You are specifying the client you want payment in advance and also in cash
Net 30 Payment is due from the 30 days of the invoice. This is one of the most common payment terms for freelancers and small businesses. 
2/10 Net 30 This is a variation of Net 30 that offers a discount on early payment. This payment terms indicates that the payment is due net 30 days but if you pay within 10 days you will get a discount of 2%
50% Upfront The client is expected to lay 50% of the invoice amount before the work begins. This is common for big projects that take time for completion of work. 

Late fees for Unpaid Invoices:

You want to make sure your invoice payments terms are enforceable. Including late fees within your invoice terms will let clients know they will be charged an extra fee for late payment. Charging late fees is good for businesses as it leads to a higher percentage of paid invoices. Late fees charged for unpaid invoices usually run between 1.5 and 3% interest per month. You need to make sure any late payment invoice terms you include on the bill should abide by state laws. You need to familiarize yourself with the maximum annual interest rate in your state. 

Also Read – Top 10 Free Invoicing Software for Small Businesses

What are the best Invoice Payment terms for businesses?

The best invoice payment terms for your business is the one that makes you get paid faster. Some best practices for invoice payment terms include:

  • Politely word your invoice payment terms:

Being polite while writing your invoice payment terms on the bill, isn’t just about maintaining good relations with your clients but also ensures your invoices get paid on time. Try to mention words like “Please” and “Thank You” that would increase your chances of getting paid on time. 

  • Set specific deadlines:

Setting clear, specific deadlines in your payment terms can help your business receive payment faster. Complicated and vague invoice terms such as Payment due upon receipt and Net 30 can confuse clients which may lead to late payments. Use precise language in your billing due dates. For instance, list the exact date of payment you’re expecting. 

  • Shorter Payment Period:

In order, to get paid faster by your clients, considering shortening the payment period on your invoices. Usually the 30 day payment period was a common practice, technology has driven to make payments faster through online payments and direct transfers. You can start by shortening your payment period slightly, from 30 days to 21 days and see if it helps to get paid faster. 

  • Include and Enforce late fees:

Even small overdue penalties such as late fees of 2% interest per month, can give clients added incentive to pay their invoices on time. You just need to make sure your late fee policy with the client upfront and be polite but firm when enforcing penalties. 

  • Offer flexible payment methods:

The more options you give clients for submitting their invoice payments, the more likely they are to pay their invoices on time. When the client has an opinion of a different payment method, they tend to pay quickly and easily. Consider allowing your clients to set up automatic bill payments, so that they can schedule payments automatically and not have to think about payming you everytime you send an invoice email.  

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  • Reward early payment:

Offering your clients, discount for early payment of their invoices gives them an incentive to pay you sooner by rewarding them with a discount. 

What payment method should I accept?

Small businesses should offer as many payment methods as feasible for getting paid faster and on time. If you offer your client different payment methods, it becomes easy for them to choose payment which is convenient for them and pay you faster. 

Below are the common payment methods you can consider:

  • Cash
  • Check
  • Online Payments
  • Mobile Payments
  • Bitcoin and other cryptocurrencies
  • Credit cards including Visa, Mastercard and American Express