How to get paid sooner without losing your customers

Getting paid late is the quietest way to run out of cash. It doesn’t show up in the income statement, but every day of delay is money you are advancing to your customer without charging interest. The good news is that you can almost always get paid sooner without arguing with anyone: it is enough to organize the process.

How much money your customers are holding

Before changing anything, measure. The average collection period tells you how many days, on average, your customers take to pay you:

Average collection period = (What your customers owe you ÷ Credit sales) × days in the period

If in a year you sell €730,000 on credit and today your customers owe you €120,000, your average period is 60 days. Every day you manage to cut frees up about €2,000 (€730,000 ÷ 365). Going from 60 to 45 days is about €30,000 more in the bank, permanently. The calculator for cash freed by collecting on time does this calculation with your figures.

What the law says

In Spain, payment terms between companies are set by Law 3/2004 on combating late payment:

• If nothing is agreed, the term is 30 calendar days from delivery of the goods or provision of the service.
• A different term can be agreed, but never more than 60 calendar days.
• If the customer pays late, you must be able to claim late-payment interest (the European Central Bank rate plus eight points, unless another rate has been agreed) and compensation of €40 for collection costs.

Many small businesses never claim that interest so as not to bother the customer, and that is understandable. But it is worth knowing it exists and mentioning it in your terms: a customer who knows that delay has a cost usually organizes themselves better.

Eight ideas to get paid sooner

1. Invoice the same day. Every day you take to issue the invoice is one more day of collection. If you deliver on Monday and invoice at the end of the month, you have given away up to three weeks.
2. Put the due date on the invoice, with a specific date (“due on 15 December”) and not just “30 days”.
3. Make payment easy: a clearly visible account number, the invoice reference and, if it suits your business, direct debit or card payment.
4. Agree the terms before you start, in writing, with the period and what happens if it is delayed. It is much easier than negotiating it with the invoice already overdue.
5. Warn before it falls due. A friendly email a few days earlier avoids most delays caused by oversight.
6. Call the day after the due date, not a month later. The older a debt is, the harder it is to collect.
7. Order your follow-up by amount. Review the list of overdue invoices every week and start with the largest: that is where the money is.
8. Ask for advances on long jobs or invoice in phases. A three-month project doesn’t have to be paid at the end.

Keep an eye on ageing invoices

Not everything you are owed is worth the same. An invoice that has been overdue for a week is almost always collected; one that has been overdue for more than 90 days is much harder to collect. Look at what share of what you are owed is overdue and what share is more than 90 days overdue: if that percentage grows month after month, act before it turns into a bad debt.

When a customer is too big to push

It often happens: the customer who buys the most is also the one who takes longest to pay, and you don’t want to risk the relationship. In that case, instead of pushing, you can offer something in exchange for getting paid sooner (a small early-payment discount, for example) or advance the collection yourself with invoice financing. We compare those options in Credit line, factoring or confirming.

And also look at how much your company depends on them with the weight of the main customer: if a single customer is a large part of your sales, their delays are your cash dips.

Frequently asked questions

What is the maximum payment term between companies in Spain?

60 calendar days, according to Law 3/2004. If nothing else is agreed, the term is 30 days. An agreement exceeding 60 days is not valid.

Can I charge interest to a customer who pays late?

Yes. The late-payment law allows you to claim late-payment interest (the ECB rate plus eight points, unless agreed otherwise) and €40 for collection costs. Whether you do so is a commercial decision.

Is it a good idea to offer an early-payment discount?

It depends on what financing costs you. A 2% discount for paying in 10 days instead of 60 is equivalent to paying about 15% a year for those 50 days of advance (2% ÷ 50 days × 365), quite a bit more than a typical bank loan. Use it only if you truly need the cash and have no cheaper way of getting it.