Cashflow is super important, the life or death of a business. The key to mastering cashflow is that a lot of little things can have a huge impact. Some seem trivial and often seem obvious but sometimes the obvious and trivial are overlooked. Lets focus on some key cashflow problems you may be facing in your business today.
Do you have consistent late payers?
Before you blast them lets check a few things first:
- Do you have payment due dates on your invoices? You’d be surprised the number of times I’ve seen invoices that have no due date written on them. No due date or payment terms is a signal to your customer to pay when they feel like it!
- Do you have your payment details? EFT is the most common method of payment in B2B, do you have your bank details clearly written on your invoice?
- Do you have several payment methods available? The greater variety the more likely you will get paid more promptly. Think not only EFT, but credit card and direct debit.
Have followed all of the above and still have consistent late payers?
- Implement different payment terms. Want to get paid in 14 days but average is 28 days? Change your payment terms from 14 to 7 day terms, which will reduce your average.
- Change your terms and conditions. Depending upon your product or service you could implement advance billing. Invoice for a deposit to confirm booking of work, with balance due upon completion. There are no rules with this. It really is a matter of making it work for you and your customers. I’ve seen 50%, 100% payment in advance, payments in stages. Think outside the box, it’s not industry driven, it’s what can work for your business and customers.
Be consistent with sending your invoices out.
- You can’t expect to be paid for something if you haven’t actually sent the invoice out! Ensure you are invoicing regularly. Hate to do it? Either suck it up or delegate it! This is a crucial function that can be the life or death of your business.
Develop a routine around sending invoices out.
- Invoices are triggered by events, either work is completed, orders are received, it’s end of the month etc. It depends on your workflow. Determine what triggers your “invoicing” event and develop a system around making sure that invoice is created as soon as possible after that event.
- If your workflow allows it, make it an automatic event. Creating processes within systems that automates your invoicing is the ultimate in improving your cashflow. Perhaps you have regular invoices that occur each month? Set up a recurring invoice that is automatically emailed out at the appropriate time.
Are you just simply slack on following up?
- Automate the process. Your accounting system can automatically create statements at a determined interval. This does require that your transactions are up to date to ensure accuracy. Following up on outstanding invoices will generally get you at the front of the line for payment. No follow up form you at all and your business will be put to the bottom of the pile.
These ideas are relatively simple, but so often overlooked. Which ones will you implement today to see an immediate effect on your cashflow?