Your invoice payment terms have the power to affect when customers pay you and even reduce how many unpaid invoices you have.
As a small business owner or freelancer, you probably know that getting paid is one of the biggest challenges for any business owner.
Maybe you have clients who constantly pay late, or you’re always chasing them for payment. Perhaps you even have invoices you’re not sure you’ll ever see payment for.
We wanted to understand if there are any patterns to getting paid faster, so the FreshBooks Data Analytics team did some digging into what FreshBooks customers use as invoice payment terms in 2019, and what the impact of those terms have on client payments.
Ready to see the results? Drumroll please…
The above graph shows how keywords (bottom axis) used in invoice payment terms affect how quickly customers pay (illustrated by color). On the right side is a column illustrating all invoices processed in FreshBooks, regardless of the keywords used in their invoice payment terms.
For example, 45.12% of invoices that use “Thank You” in the payment terms get paid in less than 7 days with an additional 12.70% getting paid in less than 14 days.
Turns out if you give your clients more time to pay, they’ll take it: Putting “30 Days” in your payment terms has lower time-to-paid percentages than the “All Invoices” column.
One of the most glaring takeaways is that asking for payment sooner will get you paid sooner.
It might seem obvious, but in 2019, 1,393,062 invoices were sent with “30 Days” in the invoice payment terms. Of those invoices, only 40.22% got paid within 7 days and a whopping 27.56% in 30+ days. By comparison, the keyword “7 Days” leads to payment in less than 7 days 58.05% of the time and in 30+ days only 16.51% of the time.
For keywords that don’t specify days (Interest, Please, and Thank You), there was also a slight increase in time-to-paid vs “All Invoices” with “Thank You” leading the pack, getting invoices paid within 7 days 45.12% of the time.
This next graph illustrates which keywords actually get customers to pay invoices. Using the keyword “Interest” in payment terms led to full invoice payment 92.15% of the time, followed closely by “14 Days” at 91.51%. By comparison, of all invoices sent in 2019 only 78.61% were actually paid…looks like including any of these payment terms can help get you paid.
Your key takeaway to paid faster is to ask for payment within 7 days and start charging interest on unpaid invoices. Throw in a “Thank You” and you’ve got your bases (and your client relationships) covered!
Wait…What Are Invoice Payment Terms Anyway?
Before you rush to update your invoice payment terms there are a few things you should know.
Invoice terms are typically located at the bottom of an invoice. They provide details as to:
How quickly you expect payment for services If there are interest charges for late payment What payment methods are accepted
Payment terms also give small businesses better control over their cash flow because they help customers understand how to process invoices.
While there are lots of options as to which phrases to include in your invoice’s terms for payment, some phrases aren’t easily understood byContinue reading