Cashflow management is based largely on having a good influx of capital. Johnny Martin gives his top tips on to make payment more efficient
When it comes to running a small business, managing cashflow is one of the biggest and most important challenges you will face.
It doesn't matter how brilliant your idea, appealing your product, or busy your business is – if you spend more money than you have coming in, you'll fail.
It's crucial, then, not only to effectively manage your finances and keep on top of income and outgoings – but also to do as much as possible to ensure you get the money that's rightfully yours into your account as quickly as possible.
Consider, first, whether you might be able to get paid immediately. If you're a tradesman, personal trainer or involved in any work which means you come into face-to-face contact with your customer, then why not make life easier for them – and you – by taking the payment there and then? The development of mobile payment solutions could mean you avoid late payments.
But for some businesses this might not be an option. There are though other measures you can adopt.
Before you start the work, make sure you have a written agreement on its scope and costs, and the procedure for getting paid. If the customer accounts payable department require a purchase order number on any item, make sure they've given you one before you start – it provides you with proof that the services or products ordered were correctly authorised.
Then, when all work is wrapped up, be sure to invoice promptly. It may sound obvious, but you would be surprised by the number of businesses who fall by getting behind on this simple task.
Your customers aren't likely to be in a hurry to pay, so the quicker you invoice, the faster you will get paid. But no matter how quickly you might send your invoices, if they are incomplete or unclear you still won't see your money in a hurry. Ensure you provide all essential information, including a clear 'due by' date, so that you leave no excuse for delay.
With decent accounting software package, it can take seconds to create and send a professional looking invoice – so make it part of your daily routine.
Using this type of software, you can also keep track on which customers owe you money, how much they owe and when they are due to have paid it by. These 'aged debtor reports', as they're known, are vital in keeping you up-to-date with your finances, and alerting you to which customers are late to pay.
Allowing a number of methods by which customers can pay you will increase the speed with which they eventually do. Don't forget cash, cheques, credit cards and online payment platforms. At the end of the day, it doesn't matter what form your money takes as long as you get the right amount on time.
Reward can also be a powerful incentive, so why not think about offering discounts for early payment? People will be more inclined to pay sooner if they can pay less – even a small discount might be enough to speed up the process and help grease the wheels – but do watch your margins.
You may have sent your invoice promptly, supplied all necessary details, allowed for a number of payment methods, stated the deadline for payment clearly – even offered a reward – but sometimes even this won't be enough. At some point you will find yourself in the frustrating position of having to chase your money. If so, there are a couple of steps you can take to speed up the process.
First, always remember that business is business – getting paid is not a personal issue. Try and ignore the potentially awkward nature of the task and chase late payments in a firm and professional manner.
This is never a fun task – especially if you're a one-man band with close relationships with your customers. So try and create some professional distance, maybe by setting up an 'accounts' email address. This will lend an air of gravitas to your business and seemingly separate yourself from the role.
It may be that your emails are met with stony silence and the time comes for you to pick up the phone. Some people find this easier than others, so why not consider hiring a freelance administrator to chase your invoices for you.
If this doesn't work, then you should be aware of your legal rights. For example, you are legally entitled to charge interest on overdue payments. However while the law can help it can be very time consuming, so reduce the potential risk to your business by keeping on top of invoicing and managing your customer payments.
Johnny Martin is financial fitness coach for Intuit, a provider of accounting, payroll and payments products for small businesses including QuickBooks, QuickBooks Payroll and Intuit Pay.
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