How to manage cash flow
Cash flow is the lifeblood of any business. So you must implement processes and procedures to ensure that you get paid on time, every time. Failure to adhere to these basic procedures will see your debtors’ list grow, your cash flow dry up, and your business collapse. Effective management of cash-flow is essential. Here is what’s required to keep the money flowing to you from your debtors...
1. Agree on a price before work commences.
Make sure from the start that the customer is told what the job will cost - and agrees to that cost - before any work commences. You have plenty of other more productive things to do with your time than to work for nothing. If you have presented a reasonable quotation but the potential customer is not prepared to accept it, then direct them politely to someone who may be prepared to work for a much lower rate. The practice of writing-off unpaid accounts becomes a thing of the past when both parties agree on an up-front price.
2. Build a sound personal relationship with customers.
Business is a series of relationships among people - the better the relationship, the more likely you are to win a customer’s ongoing business. Your investment in getting to know more about individual customers will pay dividends when it comes to getting paid. Customers, too, who value the relationship, will feel an obligation to meet their commitments.
3. Adopt simple, straightforward procedures.
Customers and staff have to be educated to understand and follow a clear system of payment and collection. For example, when did you last consider your invoicing policy?…
- Well designed invoices rather than stuffy, standard computer stationery go a long way to boosting timely payments.
- Instead of the innocuous expression ‘Amount due:--’ substitute the more powerful and action-oriented phrase ‘Please pay:--’.
- Make sure key information is highlighted by using different typefaces, underlinings, or bold text.
- Include only the payment address on the invoice.
- Incorporate a final date for despatching cheques, e.g. ‘Please ensure your cheque is despatched to reach our office by --- in order to avoid our routine follow-up systems.’
- Print all legal matters, and terms and conditions, of accounts on the back of the invoice.
- Send your invoice immediately upon delivery of the goods or completion of the service - the longer you delay in getting an invoice to the customer, the less urgency they will place on paying you.
- Set strict deadlines for payment of accounts - 14 days from date of invoice has the best track record. Rarely allow more than 30 days.
- Use a no-fuss invoice and reply-paid envelope, phone, or online payment option - payment of your account must be as hassle-free as possible.
When you have your house in order, others will know it, and are likely to work with you to keep it that way.
