Almost every small business owner worries about getting paid. Whether it is a dissatisfied client who is reluctant to pay for the service you have provided or several customers who are running overdue accounts, not receiving payments for your product or service easily qualifies as one of the biggest frustrations that any business owner has to put up with.
Besides causing anxiety to business owners, it also threatens the cash flow of a business which can be a dangerous situation for any small business to be in. The following are some of the ways you can improve your debtors’ list and ensure that you get paid for the services and goods that you provide.
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Follow Strict Credit Rules For New Customers/Clients
Large businesses often follow well-defined credit policies which minimise the number of clients and customers who owe a debt to the business. Similarly, small businesses too need to follow strict credit policies which clearly define which customers or clients shall be allowed to pay later and also the terms of the credit. An effective way to ensure that you are extending credit to the right customer or client is to perform a background credit check on them.
Another practice that businesses can follow is to accept payments only in certain forms such as cash, credit and debit cards. Nowadays, most businesses are reluctant to accept personal cheques as, in the past, businesses have experienced financial problems such as cheques bouncing on a repeated basis due to this mode of payment. You can even seek invoice finance to improve your cash flow.
Request Advance Payment
If you are offering a good product or service at a reasonable price, you can even go so far as to request your client or customer to make an advance payment. This practice is becoming increasingly common amongst businesses, especially for premium-priced products and services. A reasonable customer or client should not be offended by your request.
For example, if you are providing a particular service, you can charge a certain percentage of your estimated bill and ask the customer or client to make the remaining payment upon completion of the project. You can also divide the bill amount into three payments which must be made by the customer before the project is started, mid-way through the project and the last instalment upon delivery.
Prompt Invoices
It may sound like a no-brainer, but you will be surprised to know that many businesses do not make it a priority to send their customers or clients invoices when they are due. A business which follows such a practise and doesn’t bother to send bills for months on end cannot really complain about not receiving payment on time as they are projecting themselves to be a business which isn’t serious about being paid. It is not just the way in which a business handles its finances which is questioned but it also reflects poorly on the business as a whole.
Invoices must be prepared and sent over to the clients or customers immediately upon delivery of your product or service. Not doing so can slow down your cash flow and give your clients or customers the impression that you are indifferent to getting paid. Another practice which can be detrimental to your cash flow is preparing invoices at the end of the month irrespective of when the product or service is delivered.
Assuming that the delivery takes place on the first day of the month, preparing an invoice on the last day can add as many as thirty days to the conversion period of your business’s cash flow. Since the process of creating invoices is no longer manual, it is possible to create invoices as and when required with the help of POS (Point of Sale) systems or small business accounting software.
Payment Terms must be visible and clear
Leaving it up to the customer to decide when your invoice should be paid is another such practice which can hurt your cash flow. Being perceived as an organisation which can be pushed over can be quite harmful to the image of your business. Instead of sending invoices which include vague terms such as ‘payment upon receipt’, you can clearly specify the latest date by which the payment needs to be made and also the consequences of late payment.
Reward Prompt Payments
You can even try running offers on early payments of invoices such as a discount on the bill amount or giving away freebies to those who pay on time. This can increase the number of customers or clients who make prompt payments and give your cash flow an early boost. For example, if you generally set a due date of 30 days from the generation of invoice, you can reward customers who pay within 14 days.
Follow-up is Important
Every business has its set of customers or clients which are notorious for missing payments. For such clients and customers you can consider setting up a system which flags late payments and sending them regular reminders to make payments. Nowadays, reaching out to customers and clients has become extremely simple as there are so many channels for communication. You should select the one which you believe is most suitable to contact and more importantly the one which gets the required response from the customer.
Without being threatening in any way, you can come across as polite and friendly. It is not uncommon for people to simply forget that a payment is due and a gentle yet firm reminder can do the trick. If a particular client or customer cannot be reached on the phone, you could try other ways of contacting them such as dropping them an email or sending a letter to their registered address.
The first correspondence should simply state that a bill is overdue and if it fails to draw the attention of the customer towards the issue, you can make more serious appeals in your subsequent letters.
By following the practices given above you can make a difference to your cash flow. For unrelenting customers, you may have no choice but to outsource the job to a debt collection agency.
