Great article by Deborah Evington - bookkeeper and finance manager for SMEs :-
It is said "Cash Flow is King!", and this rings especially true for small business.
I recently posted an update from the Australian Small Business & Family Enterprise Ombudsman that announced an inquiry into the payment practices of Big Business & some government departments.
If you missed it, here’s the link.... http://asbfeo.gov.au/news/news-articles/mysmallbusiness-column-early-trumps-late-when-it-comes-payments.
But how does a small enterprise avoid being the victim of such bad payers? What steps should the self-employed take to make sure they are paid in a timely manner?
I have been involved in business as a self-employed contract bookkeeper for nearly 16 years now & I have seen some clients that had been pushed to the wall due to bad debtors before I was called in to clean up the mess.
Here are some simple, yet very effective, tips to help your business stay on track & in the black!
1. Follow up on overdue accounts weekly
If you have a history of accepting late payments and you don’t chase up overdue accounts, your customers get the impression that you’ve got money to spare, and they aren’t in a hurry to part with theirs.
I know your time is valuable & you’re probably already flat out just keeping up with the tasks of working IN your business. I cannot stress enough how important it is for you to spend just a couple of hours on the same day every week to chase up money that is owed to you!
That is one of the first things that I put in place whenever Figures and Faces are called in for a rescue job! It makes such a difference. Within a very short time we have seen tardy customers paying within terms, if only to avoid getting our nagging phone call!
If you have a bookkeeper (either a subcontractor or employee) they should be doing it for you. If they are not, ask them why not??
2. Implement discounts for early payment
This tip works well with both one-off ordersand regular customers. Of course you factor the discount into your pricing but it’s a sweet way to charm payments into your bank account earlier than they would have otherwise come in.
Speak to your bookkeeper or your accountant about what rate of discount would work best for your business.
3. Implement late payment penalties
This tip is really intended for use with regular customers. Well...it works for Big Business, doesn’t it?? They add it to our next bill, don’t they? Banks, Telcos & energy providers all do it....and we just suck it up or we pay our bills on time!
You would have to make sure that notice of the late payment penalty is included in your Terms and Conditions of Sale, or is included on your invoices.
It’s a bit hard to impose a late payment penalty on a one-off order if the customer pays via EFT, but it could be collected if the customer paid at your business premises. The relevant amount would be added to the invoice value & put through your EFTPOS facility.
Speak to your bookkeeper or your accountant about what rate of late payment penalty would work best for your business.
4. Consider debtors finance
This is not a decision to be taken lightly, nor should you make this decision without first discussing it with your bookkeeper or accountant. You’ll also need to do your homework about which Debtors Finance provider will fulfill your unique needs in terms of factoring, saturation & fees. Again, your bookkeeper or accountant can help you with this.
You will need to take into consideration the volume and value of your invoices, weigh that against the weekly cash flow needed for your business, then add to that the monthly fees that Debtors Finance providers charge.
I have seen clients use this option successfully as a well managed tool and they have been able to turn their back on bad debtors as a result. However, I am also acutely aware of the pitfalls if this option is taken without due diligence.
Once again I strongly suggest discussing this alternative with your bookkeeper or accountant before signing on the dotted line.
So there you have it.....4 simple ways to reduce your bad debtors and your stress. I have seen clients achieve fantastic results by implementing one or more of these strategies.
If you found this article helpful, please share it with your connections. I'd love to hear from you too so please feel free to share your thoughts by making a comment.
For more about Deb Evington and her team at Figures and Faces visit https://figuresandfaces.com.au
To visit Your Hassle-free BAS Zone, go to http://bit.ly/Stress-free-BAS-Compliance
A laugh to reward you for reading all the way to the bottom........
