Invoicing and Getting Paid on Time

A profitable business can still run out of cash if its customers pay late. The way you invoice is within your control and affects when the money arrives. This post covers payment terms, deposits, a follow-up routine and the effect of VAT on unpaid invoices.

Clear payment terms

"Payment on receipt" sets no date that you can enforce, and "30 days" in a footer is easy to overlook. If your invoice doesn't say exactly when payment is due, the client decides when to pay. Every invoice should carry a specific due date, your full banking details, a clear reference, and what happens if payment is late.

State a clear due date, such as "due by 15 May", in the main body of the invoice.
Put your full banking details and a payment reference on every invoice.
Invoice on the day the work is done. Payment terms start from the invoice date, so waiting until month-end delays payment.
Send the invoice to the person who pays it, such as the accounts inbox, as well as your day-to-day contact.
Number your invoices in sequence and never reuse a number, so that you and the client can both track what's outstanding.

Deposits and staged invoicing

If you do the work before you're paid, you are lending the client money interest-free until they pay. A deposit up front, such as a third or a half depending on your trade, reduces that. It covers your materials, it tests whether the client intends to pay, and it reduces the amount at risk if the final payment is late. For larger jobs, invoice in stages so that money comes in as the work progresses.

Set up a follow-up routine and use it for every invoice. Send a friendly reminder the day before payment is due, a firmer one on the day it becomes late, and phone the client at seven days.

Steps for chasing a late invoice

Decide in advance what happens at each stage of lateness, and follow the same steps for every client:

Day before due: send a friendly note, such as "invoice 1042 is due tomorrow".
Day it's late: send a firm, factual reminder with the invoice attached again and the banking details repeated.
Day 7: phone the client. A conversation can settle a payment that emails have not.
Day 14+: send a formal written demand that refers to your terms. For larger amounts, send a letter of demand or hand the debt over for collection. Tell clients about these steps in your terms from the first invoice.

VAT on invoices that haven't been paid

On the standard invoice basis, VAT is due to SARS on the tax-invoice date, which is the date you raise the invoice. The date the client pays doesn't matter. You can owe SARS 15% on a sale for which you haven't been paid, and you still have to pay it with your next VAT201.

VAT due before the client pays

You invoice R115,000 (R100,000 plus R15,000 VAT) on 20 April. Your client pays you 60 days later, in late June. Your VAT period closes at the end of April, so the R15,000 is due to SARS by the 25th of the following month. You pay it out of your own cash while the client's payment is still outstanding.

25th

Day your VAT201 payment falls due every two months, whether or not your customers have paid you

Once you're VAT-registered, slow-paying customers mean you pay the VAT on sales you haven't collected. Prompt invoicing and follow-up protect your margin and your VAT cash. Some businesses can use the payments basis, where VAT is due when the money is received. Eligibility is limited, so take advice before you apply.

Making it easy to pay you

Each extra step between the client and the payment can add a day of delay. Put your banking details and a clear reference on the invoice, add a payment link where you can, and show the amount and due date prominently. If a client has to look for your account number, work out the reference or email you to ask how to pay, they may put the invoice aside. A simple payment process gets you paid sooner.

Automating invoices and reminders

Chasing every invoice from memory is hard while you're also doing the work. Cloud accounting software can raise invoices with due dates set, send reminders automatically and show who owes what, and for how long, in an aged debtors report. Once it's set up, the reminders go out on schedule for every client. The same report shows when a client who paid in 30 days starts taking 90.

Tracking debtor days

Track your average debtor days, which is the average time your invoices take to be paid. If the figure rises while sales stay steady, you're likely to run short of cash before your bank balance shows it. Reducing debtor days frees up cash you have already earned. If your debtor days are rising and cash is tight despite good sales, talk to us and we'll set up your invoicing and follow-up. Clear terms, a deposit, a follow-up routine and automated reminders bring in the money you're owed sooner.

Common questions

Can I charge interest on overdue invoices?

You can, if your terms say so up front and the client has agreed to them. State your late-payment terms clearly on every quote and invoice. If a client still pays late after agreeing to interest, take that into account when you decide whether to keep working for them.

A big client refuses to pay a deposit. What now?

Weigh the risk. If you go ahead, invoice at milestones so that you're paid as the work progresses, and keep the amount outstanding small. We can help you work out how much cash that client ties up.

Should I be on the invoice basis or the payments basis for VAT?

The invoice basis is the default. The payments basis, where VAT is due when you receive the money, is available only in limited circumstances and can ease cash flow. Eligibility rules apply, so check your position with us before you apply.

How soon should I send the invoice?

Send it on the day the work is done or the goods go out. Payment terms start from the invoice date, so each day you delay sending it adds a day to when you get paid.

Invoicing and getting paid on time