One of the key cash flow issues for businesses is caused by delays in collecting debtors after providing goods and services. The following are some tips and strategies to speed up the process of collecting money owed by your clients and customers:
- Use clear and simple payment terms so customers know when payment is due. Generally it is recommended to include the date payment is due rather than terms such as 30 days from receipt
- Provide a discount for early or upfront payment as incentive to pay on time (or implement a late payment fee)
- Invoice quickly once the service has been provided. For example cloud based software can allow invoicing from a mobile device providing client with online invoice together with links to payment options
- Provide multiple payment options to make payment as easy as possible. Options to consider are direct debit, credit card, EFTPOS and online payment platforms such as Paypal.
It is essential to have debtor collection systems and processes in place to ensure outstanding debtors are regularly followed up
- Ensure your accounting system is up to date so you know exactly who owes you money and how much. Many accounting systems also include features enabling automatic payment reminders
- Consider email reminders for upcoming payments rather than waiting until amounts are overdue and have a schedule for additional reminders and recovery action
- Know your customer and develop a direct relationship with the key person responsible for making payments
- Have a signed contract and ensure your terms and conditions are clear and transparent and have sufficient debt recovery options. This will require input from a solicitor including consideration of whether your interests should be registered on the Personal Properties Security Register
- Have a system in place to escalate debts for recovery, which may include stopping additional work, letters of demand, use of debt collections agencies and progressing to legal action if required.
- Invoice financing is an option and can be considered to assist with cash flow, particularly during periods where businesses close down, such as the Christmas and New Year period for many businesses.
- Maintain an up to date budget so you know your current cash flow position and debtor collection requirements in order to meet your own payment obligations
- Have credit check processes in place prior to entering into an agreement and research potential businesses to find out as much as you can about the business you are dealing with ASIC Business Checks app available for smartphones and tablets is a free tool that can assist with checking business details.
An Important Message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.