Sound Billing Practices

One way to get money you are owed on a timely basis is to accept cash or credit card payments where possible, since you can bank this money very quickly, even if you have to pay the credit card company or network (such as MasterCard®, VISA®, Discover®, and American Express®) a small percentage on the credit card receipts. Once you send an invoice to a customer, be prepared to wait 15, 30, or even 45 days or longer to get your cash. To reduce this time, you may want to offer a discount if the bill is paid before a certain time, like 2% if paid within 10 days of the invoice date. You may sometimes see this described as “2/10, net 30”, which means you can take a 2% discount if the bill is paid in full within 10 days, otherwise the full bill is due within 30 days.

To reduce payment delays, especially for long-term or recurring services, you may want to ask for an initial payment up front and a series of installments as you go along. Remember to send your bills out promptly. The longer it takes your customers to receive their bills, the longer it may take you to get the payments.

If you perform a service on a regular basis, be sure you get paid on a regular basis — say, weekly, every two weeks, or monthly — so customers don’t get too far behind in their payments. A stream of income on a regular basis can dramatically improve your cash flow situation.

Cash float

On the flip side, you want to find ways to stretch out your payments as much as possible. In many cases, you can reasonably delay paying some bills — such as inventory or supplies — for up to 30 days, depending on the agreement you have with your supplier. However, if your cash situation is strong and you qualify for a discount by paying up front, you can often realize a savings by paying early.

And if you charge certain expenses on a credit card, you won’t have to pay until the payment due date. Let’s say that your credit card statement closes on the 15th of the month, and payment is due on the 6th of the following month. So, for example, if you charge supplies on your card on April 17th, after the closing date, the payment for those supplies won’t come due until June 6, giving you a float of more than six weeks. Of course, you need to be careful to stay within your line of credit and avoid charges that you can’t pay off when they’re due since that could result in finance charges.

Your small business is not only a potential source of revenue for you — it’s also one for Uncle Sam and the local taxing authorities. There are fairly strict filing requirements for registering your business, getting a tax identification number and preparing a number of tax documents in the course of the year. Failing to file these forms on time and pay any amounts due can lead to difficulties with the IRS and other agencies and can be a costly hassle to resolve.