Date: 11th November 2014
Is your business locked into the 20th of the month cycle? Do you get to the 10th of each month with no money in the bank as you count down the ten days till you get paid? Do you have constant stress from uncertainty over whether you are going to be paid on time – or at all?
If cashflow is an issue for your business, let’s look at some ways you can overcome this vicious cycle and get paid faster!
It’s ok to ask your potential clients to fill out a credit application and carry out a credit check on them. Do they have payment-related court judgements against them? These are often listed in the local press, and your council will have records of them too. Even just talking to colleagues and friends in the industry will be helpful. Many businesses work within a small network of other businesses, so late payers are likely to be easily identified.
If you think someone is going to have a problem paying, you might insist on partial or full payment before you begin work and only take on small jobs.
If you’ve completed your work in a matter of days, why wait six weeks for payment? Make your terms of trade clear from the start, in contracts or quotes with your customers and on your invoices. 14 days is common and even seven days is unlikely to be a problem for most well-run companies. You could always add a discount incentive if they pay on time.
Ask for your client’s email address and send the invoice straight after work is done when it’s top of their mind. Or, in the case of on-going work, send invoices on a regular basis. This doesn’t need to be a monthly cycle, consider fortnightly invoicing so debts do not mount up.
Make sure your bank account is listed clearly on invoices so your clients can pay online. You could also try Xero’s Payment Services – customers can pay you immediately when they receive an online invoice – they simply click the Pay Now button, enter their credit card details and voila – you’re paid!
You can’t chase debtors if you don’t know who owes you money! If your accounts are currently kept on scraps of paper or in an old spreadsheet then it’s time to upgrade to cloud accounting software like Xero.
It can help to send reminders to late payers as soon as invoices become due. Start by sending an email. If there’s no response within two business days, follow up by phone. The best way to deal with a late payer is to prevent them becoming a late payer in the first place. Be proactive about this. Good accounting software will let you set up automated reminders that will take a lot of the effort out of the payment-chasing process.
When dealing with a persistent debtor, you should get in touch with your local business advice office or council. There’s also lots of advice online about dealing with the specifics of bad debt. Or you can also talk to us.
We sourced some of the above information from Xero’s blog Ten ways to stay out of debt.