Doing the job is one thing. Getting paid is another. Here is what you can do to make sure your business is getting what it’s due, when it’s due.
Good News! You’ve just secured your business a big client. The bad news is firms with 500 or more employees are the worst offenders when it comes to paying their bills. So what can you do to make sure you get paid and fast?
1. Invoice Early, Then Follow Up
All businesses would like to get paid as soon as the job is finished. In reality, the bigger companies often have their own standard terms, and they may not match yours. Invoice as soon as you can and keep your payment terms as short as possible. Make sure all your invoices include all the relevant and correct information, including purchase order numbers, billing addresses and contacts because often it’s an administrative issue that prevents the invoice from being paid in good time.
Try exploring the early bird discounts. It may be better to offer 10% discount for payment made within seven days rather than wait more than 2 months for the money to arrive. The success of the early bird discount comes down to how it’s worked into your overall pricing. Rather than skimming off the top, you could charge late clients and extra 10%, while rebating those who pay on time.
2. Spell Out Your Terms
If you don’t detail your credit terms, customers will make up their own. And they will always pay their suppliers who put their credit terms on their invoices before their suppliers who don’t. Try giving a “terms of trade” document to every new client when going through the sale process. This will give them a clear idea of what, when and how they should pay you. Implement a solid credit risk process as this may prevent you from taking on a customer with a history of paying late. Always get a credit check before extending them credit no matter how big your customer may be.
3. Make It Easy For Your Customers To Pay
Electronic payment can help get cash into your bank account faster. You’ll bear a small cost for the processing of payments, but your funds will be credited into your nominated account overnight. Many banks and business lenders offer 24/7 automated phone bill payment facilities which allow for credit card payments to be authorised over the phone. This makes it easy for your customer and efficient for your company.
4. Avoid Cash-Flow Woes
If your cash flow is under pressure, you’re probably familiar with the practice of using credit cards to fund the shortfall, but there is another way – invoice discounting. This is where another business or lender offers to fund your business by purchasing your invoices (minus a previously agreed fee). You will have the cash flow to keep afloat between payments. The amount you’re advanced usually depends on the length of time that the invoice is outstanding and from whom you’re borrowing. Take the time to compare the services offered by the different financiers; minimise amounts and fees.
5. Call In The Experts
A letter of demand will usually prompt your customers to pay you. The threat of legal action is often enough to convince them to part with their money. If not, it’s time to call in the experts. Professional debt collectors aren’t just for the big firms. Many small businesses don’t have a dedicated team to manage their credit risk so passing overdue debts to the experts can be the best option. Debt collectors are usually paid on commission and is generally around one-third of the collection amount, though rates vary. You can also charge your customers this cost if you have included it in your “terms of trade”.
Warren Kruger is an Australian Tax Specialist and Advisor. For a FREE Report “7 Essential Strategies to Reduce Your Taxation NOW!”,enter your name and email address in the Opt In Box located on the top right hand side of this article.
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