Cash is the lifeblood of the small businesses and we can’t survive for long without it – so what can we do to keep more of it for longer, spend less of it or collect it sooner? There are many, many things we can do to help keep the cash flowing in your business. Over the next couple of weeks we will share a number of different tips and idea’s – some of which we hope you can put into practice and benefit from straight away.
1. Bill Promptly
- This is a no-brainer, but with so many balls to juggle during the day it’s very easy to drop the ball on your billing!!
- Invoice promptly, send by email and save yourself the paper, printing and postage costs too.
- Copy the email to your customers Accounts Payable department if that’s a separate person or business area to ensure it is recorded on their accounting system.
- You are already busy, but schedule some time into each day to stay on top of your billing, or better still outsource to your bookkeeper/credit controller if you have one. Make this part of their daily activity.
- Avoid unnecessary delays in payment – double check your invoices, make sure they are correct and if the customer requires a purchase order number to be quoted, make sure this is clearly visible on your invoice. Missing purchase order numbers are one of the most common causes of payment delay
- Sometimes a small discount is enough to prompt early settlement.
- Never ever discount on time payments, the customer no matter how nice he is – he is not doing you any favours by paying on time! You have delivered the product or service, and the customer is simply paying what he owes you. Learn to think of this as your money in your customer’s bank account!
- In return for regular monthly payments by direct debit or standing order, you could charge a higher price for the product. Over 6-12 months for example, you will bring more cash in/make more profit on the same product sold, albeit over a longer period of time. By setting up regular monthly instalments you will also help manage your cashflow and your clients.
4. Chase debts immediately!
- Be ruthless! You are not a bank. Don’t be afraid to chase overdue debts. Some businesses successfully send out reminders 2-3 days before a payment is due as a friendly pro-active reminder. However, not all customers like being chased before the payment is due, so treat with caution! It is fair to chase as soon as a debt becomes overdue. If you stay on top of your accounts, you should be able to identify late payers as soon as they occur.
- If your accounting system allows you to set up automatic reminders for late payment, implement this and save yourself the time and effort of the first chase letter. Persistent late payers often develop better habits when they know you enforce your payment terms.
- Tips for establishing payment terms – it’s very important to make sure you have clearly documented your terms and conditions of business, and that your customer is aware of those terms. They could be attached to an original contract for goods or services, or they could be printed on the invoice itself. Publishing them on your website is a good idea, but should not be done in isolation – it does not guarantee that your customer has read or understood them nor does it ensure that they are bound by them (unless required to accept them before proceeding to an online purchase transaction)
- So discount for early payments, charge a premium for long-term payment plans and charge interest on late payments.
- You have a statutory right to claim interest on late payment, as well as a contractual right to claim interest if you have specified this in your terms and conditions. You are entitled to charge interest on payments that are more than 30 days late at a rate of 8% above the relevant period Bank of England Base rate under the Late Payment of Commercial Debts [Interest] Act 1998. See: Business Link – A Users Guide to late payment legislation for more information.
If you would like to discuss further, or perhaps need help putting any of these suggestions into practice, please call us now and find out how we can help you improve cashflow in your business