Quite often collecting debts can be one of the most difficult jobs in business but can be critical in making sure your business stays afloat.
Ask customers to sign a Contract / Agreement
If possible, ask your Customers to sign a contract / agreement that clearly states what services you will provide and how much is due when. It is likely that your terms of invoicing are not consistent with a Customers terms of payment so agree terms well in advance to avoid any nasty surprises. Also consider stating 14 day payment terms rather than 30 days as often payments unfortunately end up taking a little longer than stated to arrive.
Emailing invoices is a more efficient way of sending invoices… some accounting packages like Xero can even issue invoices directly.
Go paperless, save time and help the environment.
Deposits / Advanced Payments
It can be beneficial for phased payments for larger projects, with an advance of 25%, 40% or 50%. This shows commitment by the Customer and ensures you will not be out of pocket if purchasing on your customers behalf at the beginning of the project if it is cancelled through no fault of your own. From a cash flow perspective, ideally each project should be cash positive crucially protecting your cash flow. The more projects you are running simultaneously, the larger the potential benefit.
Who will chase up payments
Be clear on who is responsible, allocate specific individuals to follow up with customers, when invoices should be paid, when reminder letters and statements are issued and when phone calls and meetings are made. This is one of the most important tasks and should be a high priority within every company.
Make sure you have clear reminders set of when payments are expected. First chase this up with a friendly telephone call as often the payment may have been forgotten or invoice misplaced. If you still haven’t received payment, issue a slightly more formal email or letter, or arrange a meeting in person. Whilst the latter may not be preferable, it is usually the most effective way of resolving any issues.
When communicating via email or phone, be precise and make sure the customer provides a date and an amount they are going to pay, DO NOT leave it with them saying ‘it will be paid soon’ get a commitment.
If payment still is not received it is likely that the Customer may have cash flow issues. Be considerate and agree a payment plan confirming in writing. This improves the likelihood of receiving some cash rather than none, but remember, you are not a bank so stay firm!
Make sure you document any phone calls, emails, letters and meetings.
Regularly meet your customers
Build a good relationship and regularly meet your customers face-to face, you will get to know their business, the people that run it and how it works which is the most effective way of ensuring your payments are on time. If you have completed a project and the customer owes you money it is quite easy to become frustrated but make sure you remain calm and polite.
The goal is not just to sell and complete a project, it’s to build a relationship of trust and confidence with your customer
Looking for help in managing your cash flow and wondering how you are going to fit this into the day to day running of the business, speak to our expert team today.