How to get your invoices paid in five days
Getting paid as quickly as possible is a holy grail for some small business owners, and understandably so - small businesses are paid on average 21 days late in the UK, and new businesses in the US are also struggling to get paid on time. But how much control do you really have over when you get paid? We’ve searched our data for ways that small business owners are breaking that late-paying cycle, and the results might surprise you.
Looking at FreeAgent invoicing data, we found a group of invoices that weren’t just bucking the late-payment trend, but were, on average, getting paid within just five days. Surprisingly, the common link between these invoices wasn’t their payment terms - even invoices that were issued with 30-day terms (or more) were getting paid this quickly. Instead, the common link turned out to be recency, or how quickly the invoice was issued after the work was finished.
How long do you wait to invoice?
We discovered this link by first looking at the delay between finishing work and sending an invoice. Using an aggregated sample of invoices that used our [timesheet feature](/features/time-tracking/), we compared the issue date of the invoice with the most recent associated time entry, then built up a view of the average number of days it took to send an invoice.
The results show a variety of approaches - within this sample, some people invoiced immediately, while a surprising 16% sent an invoice over two months after their last timesheet entry. While it was most common to send the invoice seven days after finishing the work, half of the invoices were sent around a month after the work was finished.
If you delay, your client will delay too
We then compared the recency of sending the invoice to the number of days it takes to get paid, and found a very strong connection: the shorter the delay in invoicing, the shorter the wait to get paid.
Invoices that were sent within a week of the work being finished got paid, on average, in fewer than five days. When the invoice was sent just a week later, the amount of time to payment doubled to ten days on average. In terms of waiting to get paid, the cost of delaying gets larger and larger as time goes on.
If you invoice quickly, invoicing terms don’t matter
Surprisingly, sending an invoice quickly even appears to override the terms that you’ve asked for payment - invoices that were sent up to 15 days after finishing the work got paid quickly, even if the payment terms were longer.
As shown on the graph above, it’s only after around two weeks that the terms on the invoice start to make a difference to the amount of time it takes to get paid. At that point, asking for 7-day terms instead of 30-days terms would decrease the average length of time to get paid by more than seven days.
Drop everything and send that invoice
Based on these results, there are a few suggestions we can make to help you get paid faster and reduce the time you spend chasing outstanding invoices:
- Invoice as quickly as you can after finishing the work, ideally within a week
- If you can’t invoice quickly, set shorter terms on your invoice
Why does recency matter?
By invoicing quickly, you may be taking advantage of a recency bias in your client’s brain - because our brains tend to evaluate situations based on events that happened recently over those that happened in the past, the client might assign more importance to your invoice because they just saw the results of the work. In other business contexts, the recency bias can affect how managers rate their employees, or how investors decide which funds to buy.
It could also be that by invoicing quickly, you’re clearly demonstrating to the client that this money is important to you, and should be taken seriously by the client, too. We’d love to hear your thoughts - have you also found that invoicing quickly gets you paid quickly? Why do you think that recency matters in invoicing?
Dave Evans is FreeAgent’s Data Scientist - he joined FreeAgent after working at CERN on the observation of the Higgs Boson. His first project is to figure out how FreeAgent customers can get paid faster when they send invoices.
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