Need better cash flow in your business? You’re not alone!
The new calendar year can present cash flow issues for many businesses, particularly after the Christmas break when work inevitably slows down, and those dreaded tax bills.
So here are six steps to help you get cash in that little bit quicker.
- Have clear and agreed payment terms. This is the most important step you can take. A customer is far more likely to pay on time if there is a written agreement stating clearly what is expected of them, signed by both parties. If they don’t stick to their side of the agreement, remind them (in a nice way, obviously). After all, if you did the work late they would remind you, wouldn’t they?
- Make sure you invoice early/on time. If you finish a job at the beginning of the month, why wait until the end of the month to raise an invoice? Your customer won’t pay you until they have the right paperwork. If you bill on the last day of the month, your customer might only receive the invoice at the start of the new month, ready for payment at the end of the month. By now you’ve waited nearly two months after you finish the work before they consider payment.
- Make it easy for your customers to pay by offering as many options as possible. For example putting your bank details on the invoice/reminder will encourage online bank transfers. Sending invoices electronically can also help with this process.
- If you do offer payment terms, send a polite reminder when the invoice is due. This can be in the form of a statement or a copy of the invoice, with a covering note reminding them of your agreed terms.
- Don’t give customers an excuse not to pay. Checking with the customer that everything’s OK with the work will dramatically reduce the likelihood of them coming up with excuses further down the line.
- Finally, written procedures for debt collection. You can outsource this, but if you’re managing this yourself, you need to be clear exactly what steps you will take and when you will take them. Make sure you follow your own rules. Be polite but firm and customers will get the message!
It can be a difficult balancing act when you have customers that you want to keep, but aren’t the best payers. Bad payers take up time and resources that could be far better used on other things. Ultimately, a customer that doesn’t pay is worse than not having a customer at all.