We have all heard that “Cash is King” in business but how do you keep that cash flowing in? You can make lots of sales to customers but if those customers don’t actually pay your invoices and money doesn’t come in, your business could go under.
In some industries, such as retail, you might receive your cash at the time you supply the goods; in this case, your cash is flowing in immediately. In many other industries, however, it can be 30+ days until you actually receive the cash for goods or services you supply.
Managing your debtors and, therefore, your cash flow can be stressful and a job that most business owners avoid, but it is so important. Here are a few tips to help you keep on top of your debtors so they don’t get out of hand.
1. Agree on the payment terms before you supply your goods or services
Be transparent about your payment terms. Expect a client to pay upfront or within 14 days of the invoice date? Tell them. You can negotiate different terms for certain customers if you are happy to.
2. Send invoices ASAP
The sooner you send out your invoice, the sooner you get paid. Raise the invoice as soon as you complete the work or supply the goods and don’t wait until the end of the month. Waiting can result in someone else’s invoice being processed before yours. Also, some larger businesses implement a creditor cut off date early in each month. If you do not have your invoice to them by their given date, you have to wait until the next month to get paid!
3. Pick up the phone
Noticed a customer hasn’t paid your invoice on time? Sometimes all it takes is a quick and friendly reminder. Emails are easy but often a telephone conversation is a lot harder to ignore and forget. You can also set up invoice reminders from Xero to automatically remind customers to pay.
4. Make it easy for customers to pay
Think about how your customer base likes to pay and make the payment process obvious and straightforward.
Dealing directly with consumers? Maybe it is worth engaging a payment service like Stripe so your customers can pay online using a debit or credit card. Or, if you provide a repeating service, engage with a system like Gocardless to set up quick and easy direct debits with repeat customers.
Selling to other businesses? Try using the Xero Network Key or e-Invoicing to streamline your customer data entry process and get paid sooner.
5. Be prepared to use debt collection
Still not receiving payments from customers? It is time to escalate your actions. You can engage a debt collector such as Bodycorp or Debtor Daddy to chase these debtors for you. You will be charged a fee for this but it is often charged to your customer. This action can have a negative impact on your relationship with your customer, but if they are not paying you after your reminders, they may not be the type of customer you want to maintain a relationship with. That is a decision for you to make.
If you’re having trouble managing your debtors or would like to learn how to streamline your debtor processes, get in touch–we’d love to help make this process as smooth and easy as possible.
