Cash Flow in Business: Show Me the Money!Ian McManus
Every day, I hear small business owners excitedly talking about the salesthey’ve made. I too feel excited for them because sales are a critical component of being successful.But I also can’t help thinking “but have you been paid yet?” I hate to break it to you but a sale is not a sale unless you’ve been paid.
And if there’s one thing I know as a small business owner, getting paid sooner and much more easily is the holy grail of business.
Dun & Bradstreet, a global market leader in debt management services, recently reported that small businesses on average are not getting paid for 56.6 days. It also reported that the number of companies now paying their bills at 90+ days overdue has jumped 20 per cent, while those paying at 60+ days overdue have leapt 41 per cent. This is devastating for cashflow and something we all need to be on top of.
But how? We all appreciate our customers; how do we avoid upsetting them?
I would strongly suggest you implement one or more of the following tips to improve cash flow in business:
- Always ensure your customers are aware of your credit terms. Talk to them and have them agree.
- Complete an Account form if you are extending credit and ask for Directors’ guarantees if it is a large amount. You are entitled to have security. If they refuse, this is an early warning sign.
- Consider credit checking the customer, particularly if the potential sale is a big one. (Remember many businesses fail; often before small businesses get paid!)
- Consider accepting EFTPOS, credit card payments or cash on delivery.
- Instead of stating on your invoice ‘Payment terms 30 days’, state a date – ‘Please pay by 30 July 2017’.
- Consider offering an early payment discount – ‘Take 5% off this invoice if payment received by 30 July 2017.’
- Conversely, add interest to the invoiced amount if not paid by the due date. Remember, your customer is borrowing your money and they need to acknowledge the cost. I suggest 1% per month as a starting point. (That is 12.68% per annum which is currently way above commercial bank rates so they’re encouraged to pay.)
- Consider invoicing immediately or a minimum of twice a month. Don’t leave it to month-end.
- Consider seven day terms. After all, your bills and wages can’t be deferred.
- Consider asking for payment upfront.
- Consider payment installments: one-third deposit, one-third midway, one-third at the end.
- Remember, people will always pay more quickly if they know and like you. After delivery of the products or service, ask if it met their expectations. Address any complaints or excuses before they cause delays or issues.
- Consider sending an email as soon as the sale is made, thanking them for their business and reminding them of your payment terms.
- Purchase a mobile app that reminds you of invoices not paid within terms. Take urgent action so they know you’re serious about your business.
- Don’t be afraid to follow up non-payment, preferably with a phone call, not an email. Ask why they haven’t paid on time and ask for a date of payment. Enforce it. If they miss the date, get serious immediately.
- Don’t give your customers an excuse to delay payment.
- Although this is important, try not to hassle customers because this will have an impact on repeat business. Approach it as a process with gradual escalations.
Remember you’re not a bank, and the customer will only cost you money if they’re not a paying customer (and this probably means they’re not worth retaining).
If you’ve done everything possible and the customer still hasn’t paid, use a receivables collection agency or some other collection method before you consider it a bad debt. It may not cost as much as you think to recover the debt.
Getting your customers to show you the money can be achievable. You just need to prepare well to avoid the pitfalls.