All business owners know that whilst seeing a healthy turnover line and profit line keeps you smiling, unless there is cash in the business to be managed effectively it could be game over. Even a highly profitable company can fail because it has failed to manage its cash flow effectively.
Keeping the cash rolling in so you have some to manage in the first place!
- Set your stall out with customers from the start. Are you so grateful to have won a contract or piece of work that you go into it without having discussed the payment terms? Do not shy away from setting out your expectations at the very outset. This is how much the service will cost, and this is how I expect to be paid -do you have a problem with that? This approach will save administration time and effort chasing debts later on and gives the customer the opportunity to disagree with it at the outset, once they have agreed it is much easier to follow through.
- Ensure that your sales invoices are issued promptly and contain enough detail for the customer to be sure of what they are paying for. Once you have completed / started a piece of work, bill it. If you are too busy and do not issue the invoice for 2 x weeks do not be surprised that there is a hole in your cash flow. One of the most common reasons for an invoice dispute I have seen is a lack of detail on a sales invoice. Basically concentrate on making it impossible for anybody to dispute an invoice you are issuing. If it needs a PO number or a reference number – ensure it contains it.
- Make it as easy for your customer to pay as you possibly can. With the development of technology has come the development in the methods of payment made available to small businesses. Make sure you exploit all of these, remember if your customer is a busy owner like yourself they will be pushed for time and if it is difficult to pay you because you don’t have payment methods available out of hours etc. you will get left to one side. Xero, a cloud accounting solution is linked up with various pay solutions and as you email an invoice out it contains a link to a payment system, this functionality is fantastic for small businesses.
- Don’t be embarrassed to talk about money – especially if somebody owes you it. We often discuss our product or service with a lot of passion, focus on delivering what we have sold but then it is often the case when somebody has not paid within our terms we become all of a sudden conscious about having that conversation and skip around it. Throw that off – they should be embarrassed not you. If you believe in your product / service do not shy away from those conversations that ask for your payment.
- Systemise your credit control process so it removes the thinking process. For example, statements are emailed out at the end of every month, if somebody is 14 days late paying, they have a certain letter, 30 days – decide on a harsher letter or phone call, at a certain point further action is taken. This ensures all of your customers are treated the same and takes the administration time out of managing the credit control procedure. Xero the cloud accounting solution is a great tool for achieving this as it has a number of handy features that really assists with this.
Read part 2 next Tuesday – Top tips on managing the cash flow.