You’ve probably heard the old phrase “Turnover is vanity, profit is sanity, but cash is king.”
And in this day and age (against the backdrop of a global pandemic and a challenging economic climate), it has never been more true.
Having access to a steady flow of cash is critical to the success of your business. But a strong and reliable cash flow doesn’t just happen overnight. It takes hard work, discipline, and attention to detail.
Here we share our top tips for getting paid on time (in full) to keep your cash reserves brimming over.
9 things you can do to start increasing your cash flow today
1. Agree to payment terms upfront for all customers/clients
Avoid vague or ambiguous language and leave nothing to chance when agreeing on payment terms with your clients. Instead, deal in specifics and focus on the most important details.
This should include when you will invoice, how you will send the invoice, who you’re sending the invoice to, and how and when you expect to be paid.
That way, your client will be under no illusions as to their responsibilities when it comes to payment.
2. Invoice on time and in line with your terms
Don’t hesitate to send an invoice or leave all of your invoicing to the end of the month. Invoice when the work is completed, or better still, have one of your team do it for you.
3. Offer various payment options
The more flexible you are in terms of how you ask for and accept payment, the more likely you’ll be paid on time. Consider accepting credit card payments in addition to bank transfers, or offer funding through an outsourced provider.
You could also offer small discounts for full payment upfront, or ask for a deposit before beginning any work — that way you have cash in the bank and the risk of non-payment is minimised.
4. Scrap those outdated 30 day payment terms
Look at your invoice template. Do you have any reference to 30 day payment terms? If so, delete them! This throwback to the days of snail mail creates an impression that it’s okay for your client to leave it to the last possible day before parting with their cash.
In fact, research by Xero discovered that the shorter your payment terms, the faster you’re likely to be paid, with close to 75% of invoices now asking for payment within 2 weeks.
5. Make it easy to pay
There’s no excuse for making your invoice difficult to pay in 2020. At a minimum, it should clearly display your bank account details, and it should be sent via email. And online software, such as Xero, is a great way to send and track your invoices effortlessly.
You could also use third-party software like GoCardless to set up Direct Debits for recurring payments, or set up Stripe or PayPal to allow clients the option of paying directly as soon as they receive an invoice.
6. Monitor your collections daily
Using a cloud-based, real-time system, make sure you’re reviewing payments received on a daily basis.
This is made easier thanks to open banking, as most software is updated twice daily with your latest figures, so you’ll have a clear understanding of who owes what. And that means you can spring into action sooner. Speaking of which…
7. Put someone in charge of chasing payment
Ideally, chasing payment shouldn’t be left to the business owner or the individual who provided the work (assuming those are not one and the same).
Instead, delegate that task to a client-facing person, whose job it is to check-in with your clients, make sure they’re happy with the work, and then follow up if they still haven’t paid after the due date.
And if you don’t have the team to support this role, or you’re a sole trader wearing several different hats, consider automating this task with something like Chaser.
Either way, remember, the squeaky wheel gets the grease!
8. Don’t do work for non-payers
If a customer is sitting with an overdue invoice, don’t accept any further work until their balance is paid in full. Be strong and hold your ground. It really is that simple.
9. Use an outsourced debt collector
Finally, if you’ve followed these steps and still haven’t been paid, it might be time to outsource debt collection (in line with most modern accountants Spark offer this service) to recover the payment. This should form part of your terms of trade and shouldn’t come as a shock to your client. After all, you’re not a bank!
And remember, a sale is not a sale until the service is delivered AND the money is in your bank account.
Want to learn more about invoicing and managing cash flow? Book a quick 15-minute discovery session with Spark and we’ll explain the benefits of cloud accounting and automation.