Carl Reader, author of The Start Up Coach, co-owner of dennisandturnbull.com
It’s basic business – regardless of how excellent your service or product is,all businesses need to have more money coming in than going out.
Sometimes, however, it can be very difficult to manage your cash flow. After all, your business’s cash flow is determined by the ability – or the inclination – of your customer to pay.
It’s crucial to the survival of a business to stay on top of your finances and keep the money coming in.
But what if you raise an invoice, and you wait. And you wait. And wait a bit longer. And then wait some more…but the payment still doesn’t come through. In this case, there’s a few practical steps to take to help ensure you get your payment as early as possible. It’s not a 100% guarantee that you’ll get payment, but it’ll set you up well so that 90% of the time, you do a better job than someone who leaves it to pure luck.
So what do you do?
- First, make sure you do your due diligence on your customers. You can run credit reports on them – there’s a variety ofonlinecredit check companies available – andyou can build up an understanding how creditworthy they are as a business. If they’ve got a track record of not paying people, then you need to know about it, before you do any work for them. Let’s be honest – a customer that doesn’t pay you is a customer that’s not worth having.
- Be prompt with your invoicing. This sounds obvious, but so many businesses allow this simple process to fall behind. Without an invoice, you can’t be paid, so make sure you invoice them as early in the process as you can. What’s more, you should ring them up, tell them you’re going to be raising an invoice, and if there are any problems, they should give you a call straight away.
- Next up, set reasonable terms. Terms that you set for your business are down to you, but there’s no reason you need to stick to 30 days. Why not 7 days? Why not due on presentation? Then, at the point the invoice is due, pick up the phone and talk to your customer. Tell them their invoice is due for payment, and you just want to confirm that it was all OK.Also – is the cheque in the post? Staying in contact allows you to iron out any problems sooner rather than later.
SOMETHING TO AVOID – I’ve worked with thousands of businesses, and seen all too many times that often, if a company can’t afford to pay you, they’ll wait a few months.They will then claim some sort of dissatisfaction. Now, this is just pointless for both sides. If there’s a problem, you both need to understand and discuss it sooner rather than later so that it can be fixed. Contact and effective communication with your customers is the key here.
So you’ve made your call and they’ve promised to send a cheque – what happens now if that doesn’t come in?
You need to have a systemised process in place to chase, ideally of emails, letters or however you usually communicate costs due. I suggest a mix, where you follow up – for example – a week after due, two weeks after due and then a month after due.
Sometimes, it’s necessary to inject a bit more “bite” to your communication. So if you’ve started with emails, on the third contact move it to a letter. This letter has to be worded in a certain way so that it can be used as a final demand before any court action. Speaking of court action – make sure you keep a record of all communication in case it’s needed at a later date.
You might also decide to bring in a credit agency or external party such as a debt collection solicitor, who will probably send a templated letter to chase the debt. This just helps to give ita bit more gravity – an increase in responsibility and power from an external third party which can just nudge the chequebook in your direction.
Throughout this article, I’ve been referring to cheques and invoices and so on. What if you did things differently? Making the payment process for your customers as simple and as painless as possible is a great way of helping ensure you get paid. Consider whether you could move away from the old way of doing things and transform your business with a new payment method that can be better managed. Have a think about whether direct debit could be appropriate; maybe ask for credit card payments up front, rather than after the event. There are many different ways you can streamline the processes. Whatever you decide,automate them by using cloud accounting tools and automated chaser tools. Once these systems are embedded and clear, you should have a firmer level of control over your business cash flow.