4 tips small businesses can implement in 2016 to get paid fast.
Business Victoria highlights that getting paid and managing cash flow are in the top 5 small business problems for Australian businesses. It’s can be easy to point the finger at the customer when it comes to unpaid accounts but often the business can be at fault too.
What many businesses don’t realise is that when you sell goods or services to your customers, via an invoice, in essence you are lending your client the invoice amount for the length of the invoice.
In the same way a bank lends credit you’re effectively providing the same service for your clients by providing goods and services before payment has taken place. This means that every time you provide credit you must have a clear and enforceable agreement the same way the bank would if you borrowed credit from them.
If you’re tired of being your customer’s bank and providing free credit services then 2016 is time for change. So what steps can we take in 2016 to getting paid faster?
1. Define and set clear terms and conditions
Before you enter into a credit transaction with your customers you must ensure that your trading terms are clearly defined. Trading terms allow you to set the terms and conditions between you and your customers in order for the transaction to occur.
You want to define specifics such as:
- Due date of amount
- Number of days to provide payment
- Any overdue fees that will be charged should late payment occur
- Fees incurred for third party debt collection agencies
Don’t forget that debt collection fees are deductible and the debtor can be legally bound and accountable for any fees that occur but it must be clearly defined and agreed in your terms of trade.
2. Enforce a significant deposit
At the small business level one of the best things you can do is request an upfront deposit before any goods or services are provided. Your initial invoice and your newly defined terms of trade ensure that you’re covered for any upfront work, or goods sold, and you’ve significantly reduced your overall risk.
Businesses are often unsure of the frequency or the time period in which you should contact customers for the remaining amounts. Again, your quote or first invoice should detail the payment terms for the outstanding amounts which then allows you to follow up with confidence.
3. Conduct credit checks before entering into any transaction.
Research has shown that only 17% of businesses conduct credit checks on new customers. If you request credit from a bank what is the first thing they do? Of course they’ll conduct a credit check and so should you.
Before you agree to conduct business with any business a credit check can be used to reduce your risk and allow your business to make informed decisions on potential customers’ or vendors. Credit checks allow you to more easily foresee problem customers.
4. Automate overdue notifications
With many modern accounting systems, such as XERO or MYOB, it’s a simple step to schedule overdue notifications or follow up invoices for outstanding amounts. These two combined are two very powerful techniques for getting paid fast.
Businesses can stay on top of their cashflow by sending overdue notifications automatically. With the busy workloads of business owners and their staff is easy for things to get behind in your accounting. Overdue notifications and automation allow the process of receiving outstanding cash to occur more easily and alert both parties that action may be required.