82% of business failures are due to poor cashflow
The Top 5 Ways to ensure it doesn’t happen to YOUR Business!
1.Invoice
Invoice immediately – If you are invoicing weekly or even monthly (gasp!) you are giving your customers extended credit terms which will greatly affect your business cashflow. With invoicing available through many mobile devices there should be no more excuses! You can invoice, email and accept payment before the customer has even left the premises
Ensure you email your invoices directly to the person responsible for making the payments so they don’t get ‘lost’. Most accounting software systems allow you to review whether an email has been viewed or opened by the customer, if you don’t have this feature ensure you ask for a ‘delivery or read’ receipt through your email program
Discounts for early payments can be a great incentive for your customers but could hurt your bottom line if not factored into your overall pricing. You may want to charge an administration fee for late payment to account for additional work chasing payments
With the introduction of live bank feeds and dashboard summaries in many accounting packages there are no longer any excuses for your accounting data not to be up to date. You can clearly see at a glance invoices currently outstanding on the dashboard summary with further detailed reports available
2. Trading Terms
Are your customers required to apply for a trade account? There are many free template application forms available on the web which would need very little modification. The application as well as contracts or engagement letters depending on your industry enables you to clearly state your trading terms as well as any additional fees charged for late payment. Credit checks and following up business/trade references is essential to reduce risk of non-payment
As well as your trading terms, include the actual due date of payment on all invoices to avoid any confusion and unnecessary payment delays. Limits may be setup in your accounting software to warn of current outstanding invoices for a specific customer when processing a new sale so staff don’t accidently extend further credit to slow or non-payers.
Again your accounting software should make it easy to review overall average number of accounts receivable collection days through dashboard summaries or reports. Some softwares will also show average number of collections days for a specific customer allowing you to decide on an individual basis who you wish to continue trading with. Reducing collection days by even a minimum amount can greatly enhance the cashflow of the business.
3. Prepayments
Depending on your industry you may be in a position to request a deposit upon commencement of work or an order. Instalment or work in progress payments may also be required at specific points prior to completion. Any deposits or progress payments amounts should be clearly stated in your initial contract together with expected payment dates or progress made.
Up front pricing works particularly well in the accounting industry resulting in better planning and cashflow advantages for clients. On ascertaining a clients annual requirements I am able to ‘bundle’ there services including telephone calls and email to encourage frequent communication. Regular monthly payments reduce the annual fees to assist cashflow.
I recently heard of a coffee shop which sold a prepaid card which could be easily swiped therefore reducing the wait time in the mornings for customers. This implementation meant that for each customer with a card the shop was receiving the next ten days worth of coffee payments upfront which greatly enhanced their cashflow. This is what I call a win/win for both the customers who want to be on their way and the coffee shop. The GO Via transport cards are a similar incentive
4. Outsource Debtors
There are options available for outsourcing your debtors that enable you to be paid generally up to 80% of the invoice total within 24 hours. While that may sound attractive is does mean you forgo the reminder of the invoice which depending upon your business size could result in a lot of money. However, it may be a short term solution for some businesses to assist with cashflow. There are many options available including;
Factoring
- The sale of all debtors or specific invoices
- Debt ownership is transferred
- Disclosure – customer is generally made aware
Discounting
- Borrowing/Credit is based on your Receivables outstanding balance
- Your sales ledger is collateral for the borrowing
- Confidential arrangement, customers won’t know
- Credit control remains with Business owner
Financing
This option allows customers to finance your fees. The arrangement is simply between the customer and the finance company with no involvement or fees to your business.
All the above options have their pros and cons so ensure you select the right choice for your business.
5. Debt Collection
Not many business owners like debt collection and are concerned their customers may get ‘angry’ and take their business elsewhere
Try some of the following to get paid sooner
- Systemise your debt collection by having clear, written policies and procedures. Train staff and ensure they are all aware of what they need to do
- Send statements and reminders to your customers, following up with a phone call getting specific information regarding the date payment will be received and amount. Keep a log of all debt collection communication with customers.
- Are you willing to accept a payment plan if the customer is generally struggling and the alternative may be not getting paid at all?
- Outsource debt collection to a professional agency to follow up, this allows you to a certain extent to maintain your relationship with the customer as you are not the one making the phone calls asking for money
Bonus Tip!
– Payment Options
Make it easy for customers to pay you! What are acceptable payment options in your business, do you accept cheques (yep, some people still have them), credit cards, paypal or a direct transfer into your business bank account. With merchant fees sometimes being hefty some of these choices are more expensive than others.
If you have a shopping cart website have you tried the process yourself to ensure it is simple and easy to use with no bugs
Most accounting software is now giving you the option of having a pay now link on your invoice so customers can pay on the go. If they can simply click a button, select their preferred payment option and complete the payment without having to log onto a banking website then you may get paid sooner.
Make it as easy as possible for your customers to pay you so they will have no excuses and you receive your $$$$ sooner!