Cash is king! and managing it properly is one of the best ways of ensuring your business flourishes. However, many small business owners find it a real challenge to chase customers who are late paying – even though not doing so leaves them in a really tight situation with the bank.
A phrase we hear often is, “They’re a really good customer, so I don’t want to annoy them by chasing for payment”. Let’s just analyse that sentence for a minute. Why are these customers good for your business? Because they allow you to do lots of work for free? Surely, a good customer is one who appreciates your efforts and is happy to pay because they value you. If you have done the work you agreed with your customer, to the level they expected, why should they not pay the agreed price in the agreed time period?
So don’t be shy about collecting YOUR money.
Other problems I see regularly are:
Not setting payment terms up front
If you have not agreed when the customer should pay BEFORE the work is done, you will struggle to collect the money in a reasonable time frame. Make sure your terms of engagement/purchase confirmation clearly state when you expect to be paid.
Setting unnecessarily long payment terms
Don’t assume that you have to offer customers 30 or 60 day payment terms. Start from a position of offering zero payment terms and only offer extended terms if there is a commercial advantage in doing so. Bear in mind that even if you offer 30 day terms you will most probably be paid later than that. As you don’t know the financial position of all your customers the only safe money is the money in your bank account.
Not sending invoices out promptly
If you do not send out your invoices as soon as the work is complete, you automatically build a lag before you receive payment. Invoicing is a chore, but regular invoicing is vital to achieving financial stability.
The most common reason small businesses fail is because they run out of cash.
The most common reason they run out of cash is because they do not collect the money they are owed quickly enough, or allow debts to go bad.
Even big businesses struggle if they don’t manage their cash effectively – just look at the recent example of Carillion!
Make sure you business succeeds by being cash collection savvy.