Cash is king – knowledge is power
You wouldn’t believe the number of business owners we meet who misunderstand the concept of cashflow. They often confuse it with turnover. Surely, if your business is busy and you’re sending out loads of invoices, then your cashflow will be great. That money will just flow in. Hmmm … are you sure? Think again. What if your lovely, friendly customers aren’t quite so lovely and friendly when it comes to paying their bills? What happens when it’s time for you to pay your bills – from your suppliers or utility companies … and there’s no money in the bank?
When you lie awake at night, wondering when (or if even) those customer invoices will be paid, that’s when you’ll realise what cashflow is all about … and why it’s so important.
Here are few tips to keep the cash coming in
Set your terms … clearly
When setting up contracts for your clients, keep in mind the payment terms you’ve agreed with your own suppliers. Imagine the trouble ahead if you agree to pay your suppliers’ invoices within 30 days, but you’ve allow all your customers a generous 60 days.
Think carefully about your standard payment terms. Do you really need to give any credit at all? The tradition of 14, 30 or 60 days goes back to the days of supplying goods for re-sale, otherwise known as retail. It made sense to allow the retailer some time to move some of the stock through before demanding payment. But look at your own sector. Surely, if your client reaps instant benefit from your goods or services, why give them time to pay, just because it’s the tradition? Provided they know from the outset what your terms are, they’ll have no cause to complain.
Also, by asking for immediate payment, you now have something to negotiate with. If your new client steadfastly refuses to accept your prices, you can then move on the payment terms without losing any margin.
Know your client
Try setting your payment terms based on what you know about your clients. Do you have a repeat late payment offender on your books? Then you could try shortening your payment period.
Make it easy for your clients
If you make your payment terms easy, you’re more likely to be paid on time. Offer your clients a range of ways to pay –
- bank transfer
- by cheque
- via Direct Debit
- processing card payments over the phone, in person or online
These might not all suit you, but your clients will appreciate the fact that you offer options.
Make sure that the options are detailed on your invoices, as well as a description of the services or goods supplied.
Get yourself organised
The sooner you invoice, the sooner you get paid. Why wait for a particular day in the month when you send out all your invoices? You’re just slowing your business down. Ideally, as soon as you’ve completed work or supplied the goods, send the invoice out.
Your bookkeeper will help you to set up an efficient system for sending out and keeping track of your invoicing.
Get to know who makes the payment decisions in your customer’s business. It’s far easier to ask for payment (and chase it) if you know who in the accounts department makes the decision. They’ll see you as a real person, rather than just a name in their inbox or on the top of an invoice. This way you’ll find it easier to send polite reminders about payment.
If chasing payments really isn’t your thing, talk to your bookkeeper. It could be that invoice chasing is a service they offer. Alternatively, you could go to a factoring house, who will pay you when your invoice is issued and then do the chasing themselves. This way you’re guaranteed to get your money promptly, but, of course, there will be a cost for you to weigh up.
Between them, Brexit and the Coronavirus pandemic have made the economy more unpredictable than ever. Now is a key time to keep your cashflow robust. So – if you’re unsure about your control over cash, don’t lie awake at night worrying. Act now! It’s always worth speaking to a specialist who understands all the implications – your accountant.
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