Getting paid on time is essential to minimising cash flow problems, especially for new businesses. Here are seven simple techniques to help you to manage your cash flow and avoid roadblocks.
Customers that don’t pay on time usually have an excuse. By far the most common complaint our business receives from late-paying customers is that their invoice is incorrect. The second most common? That businesses don’t communicate effectively with their customers when there is a problem.
Disputes about invoices and overdue payments cost both parties time and money, which can erode into business cash flow. As a business, you can combat the above (and a few other common “pay delay” excuses) by implementing the following procedures into your day-to-day operations.
1. Be paid in advance
Requesting payments in advance of delivery eliminates the need to chase up overdue payments. It also secures the work before you invest in its delivery and maximises the cash flow available to your business. If your industry doesn’t traditionally allow for this payment structure, offer your product or service in a unique way. Consider establishing package deals or bulk-buy deals that offer a discount for upfront payment.
2. Only send correct invoices
Errors in invoices cause delays. It is common for inaccurate invoices to be set aside by customers until time is available to investigate the correct payment amount. This investigation usually occurs after the business chases the overdue payment.
3. Communicate with both customer and the person who pays
It’s often worthwhile sending two invoices (with the same invoice number, so there is no confusion) – one to the person who has placed the order and another to the person who pays the accounts. Reference the person who placed the order on the invoice so that the two people involved in paying know who to talk to within the business if confirmation is needed.
4. Snail mail your invoices
Posting invoices ensures they aren’t accidently left read-but-not-actioned in someone’s inbox. Most businesses need to print hard copies of invoices in order to stamp, date, sign off and file them, so by sending a hard copy, you make it easier for it to go through the correct channels quickly.
5. Make paying easy
By accepting payments via various methods, your customers have fewer excuses for not paying on time. The most popular payment methods are direct debit, credit card, BPAY, PayPal and cheque. Direct debit is a very popular method, so ensure you offer it as an option.
6. Receive and check payments vigilantly
Ensure your invoice has a clearly visible due date (bold it!) and have a process enforcing this date. Always check that you’ve received the payment by the due date and follow up on the next business day, preferably via telephone, if the payment hasn’t arrived. Don’t delay in contacting your customer as this will set a precedent and encourage future late payments. Ensure that a revised payment date is set in your follow-up communication, and send written communication (an email is fine) to confirm that extension agreement and payment date.
7. Get tough on repeat offenders
If you have a repeat late payer on your hands, then it’s perfectly acceptable for you to send them an email or make a phone call to them a week before their next payment is due to check that it will be made. Only do this for your repeat offenders, not if a customer is paying on time. You can also consider putting late payers on a warning system. Once the customer has exceeded the warnings you have set, make your business profits a priority and send notification that you can no longer do business with them.
These seven techniques will help you communicate effectively with customers and avoid falling into common traps affecting the cash flow of many businesses. If you manage your cash flow well, you will alleviate most causes of financial stress, leaving you to focus on more important matters – like great customer service and growing your business.
Have you encountered cash flow dramas in your business? How did you resolve them?