Cash is King – getting paid!

Cash is King – Getting paid

One of the main reasons that businesses fail is poor or inconsistent cash flow. It’s also frequently the cause of sleepless nights for business owners. It’s important to operate a cash flow forecast so that you know, in advance, how much money is likely to come into your bank account and how much needs to go out, ideally on a daily basis looking weeks ahead.

Lay the ground rules

Getting paid is the first issue and the one we’ll focus on here. It’s really important to establish clear payment terms at or before the point when you start working with a new customer. Put it in writing, along with a few other helpful points such as contact details, working days/hours, and your terms or a link to them. Send or give this to your new customer and make sure it’s friendly or it might be a very short relationship!

If possible, have a conversation about payments and use a phrase like “No one likes chasing or being chased for payment, so can I just confirm that our terms are 30 days from invoice date; Can I rely on you to pay promptly without chasing?”. By saying this at the outset, they’re likely to pay on time, and if they don’t, it’s easier to say with a smile “remember at the outset I explained our terms and you agreed to pay me on time without chasing? Well now I’m having to chase.”. Keep it friendly but firm – remember – you get what you tolerate!

Payment terms

Many companies automatically provide 30-day payment terms, but in my view credit is not a right and can be given or taken away. It’s reasonable in most situations to insist on immediate payment for new customers while establishing their creditworthiness. Consider offering 7 or 14 day terms and then extending that if necessary and if the customer proves they can pay reliably.

If a customer deliberately pays late, consider reducing their credit terms and remove credit if they fail to pay reliably again.

Make leniency work in your favour

If you’re able to be lenient with customers that need more flexibility, you might agree to extended terms if you’re sure they will pay, but be sure to make it clear that it’s a temporary favour. When clients pay on-time it’s worth making an effort to thank them. If you were to say “Thank you for paying on time, I just wanted you to know that we appreciate it.” most businesses will feel a closer connection and want to pay you on time. If you don’t acknowledge or thank them for payment, it’s much easier for them to treat you as just another supplier and put you at the back of the queue. Show appreciation and be at the front of the queue.

If you struggle to get paid by a large business, one thing worth a try is to phone and ask to speak to the person that pays. Wait until after the first time they’ve paid, then thank them and say how you appreciate it because as a small business you rely on prompt payment. Do this even if they paid late – be remembered by the payer. I’ve known some people to send flowers or chocolates… but that’s probably going too far.

Late payment

If someone pays you late then it’s probably for one of just a few reasons:

1) They don’t have the money to pay

2) They’re mean and don’t pay on-time on principle (I call these ‘ex-customers’)

3) They’re disorganised

4) They really didn’t receive your invoice!

I believe in having open, honest conversations and if someone pays late I would actually ask which of these reasons applies? It’s amazing how many businesses are just plain disorganised and there’s no bad intent to their late payment. It’s worth organising your own processes to counter this.

For example, I use Freeagent software for our business invoicing and accounts and it allows us to have the system send an automatic reminder to clients a chosen number of days ahead of when their payment is due. The wording basically says that the payment is due in three days, just wanted to ensure that you have the invoice and that they have everything needed to process the payment on time. Sometimes they haven’t and appreciate the reminder. You can also suggest they set up a standing order so they can’t forget. If you collect cash promptly but still run short, consider offering a discount for advance payments, eg pay for 3 months in advance to get a 5% discount. It’s a good discount for the client but you’ll probably think it worthwhile if you need the cash – just make sure you’re not spending cash you haven’t yet earned!

Finally…

Numbers are the language of business so you need to implement strategies to get paid on time and follow up the difficult clients.

If you have any questions or want to learn more about how I can help grow your business, please call me on 07773 406343, send me an email at justincharlton-jones@actioncoach.co.uk otherwise, you can go directly to my online calendar and schedule a meeting with me: https://meetings.hubspot.com/justincharlton-jones