10 Mar Getting paid on time
Cash flow and getting paid on time is one of the biggest issues faced by small businesses. It doesn’t matter how fabulous your idea or how good or busy your business is, if you can’t manage your money your business will fail.
The saying ‘it takes money to make money’ is so true – even if we need just a little bit we need to get us going. If there is a big gap between when you spend your money (cash out) compared to when you get paid (cash in) you will have a cash flow challenge! One of the keys to effectively managing this flow is to do all that you can to get the money that’s rightfully yours, into your account as quickly as possible.
According to accounting software group Xero, about half of small businesses are paid late! Getting paid late means the money you are owed spends less time in your hands and potentially has a negative impact on your cash flow.
Being paid on time can be the difference between a good month and a bad one. If you are paid late, or you submit an invoice late, then your cash flow can be impacted.
Tips to get paid on time
Here are some ways to ensure you get paid on time (or earlier!).
1) Create policies
Work out how you want to manage your finance – everything from the use of credit cards to staff reimbursements and credit terms, and put them into policy documents. That way you can hold yourself, your employees and suppliers to account when something sits outside the policy.
2) Offer a range of payment options
Make it easy for your customers to pay you by offering a range of payment options – direct deposit, paypal, credit card, afterpay.
3) Have clear payment terms
Make sure your payment terms are in writing and included on all of your financial collateral. The terms and conditions should include:
- how and when payments are to be made
- any additional fees for different payment methods (e.g. credit card payments)
- penalties for late payments (e.g. interest, admin fee)
- any additional fees incurred if there are changes (e.g. change in scope/additional work).
4) Invoice ASAP and ask for prompt payment
Put in your invoice as soon as possible. You can’t get paid if you haven’t sent an invoice! You want to be on your clients next bank run/payment run/time when the bookkeeper is due. Invoicing regularly increases the cash in your bank at any one time and diminishes the potential for people to forget the great service they have received from you. Most people like to deal with their invoices as soon as possible. Also, make sure the due date is obvious.
5) Correct invoicing
Make sure all the details on your invoice are correct and meet the needs of your client. This could include a description of the work or product, the date it was delivered, and any client requirements (such as a purchase order number). Some clients have very specific needs, so before you send the invoice find out what they are. If they have to come back to you for more information, you could miss the next pay run.
6) Track and review client payments
You should track the payment patterns of any regular customers. Are there serial late payers? If so, you might want to have a word to them. Also, do not accept new orders/jobs from businesses with overdue accounts.
7) Run credit checks or have credit applications
Run a credit check on your client if you are worried about their ability to pay. If you work in a high risk industry you might want to require businesses to apply for a credit application. This would include getting referees and additional contact information for extra security.
8) Get a deposit
If you need to order supplies or dedicate a considerable amount of time to a job, you could ask for a deposit. The deposit should be at least the equivalent to any potential losses if the entire bill is not paid or the project does not get completed.
9) Offer discounts or incentives for getting paid early
If you are running on credit – it may be financially worthwhile to offer incentives for people to pay early and pay cash.
10) Have a diverse range of customers on your books and in the sales pipeline
If your business is too reliant on a few customers, it presents a risk if something goes wrong with their business. Having a diverse range of customers will combat this.
11) Be proactive on overdue accounts
The longer you leave it the less likely it is you will receive payment. Have a debt recovery process (and policy as above). Start with customer engagement and know what you need to do if you have to start legal proceedings.
12) Seek the right type of customer
Check out the companies listed on the Australian Supplier Payment Code (ASPC) database. These businesses are committed to paying small business within 30 days upon receipt of a correct invoice. The code was set-up by the Business Council of Australia to support small business as it recognised the benefits to the economy of being paid on time! With the impacts of the recent bushfires on small business and the coronavirus pandemic, the Council and organisations such as MYOB have encouraged business to not only pay on time, but to bring payments forward when they can.
Not being paid for the goods and services you have supplied will impact on the cash flow and profitability of your business. Establishing policies, systems and processes to manage your cash flow will help diminish the risk to your business and enable you to create good relationships with your customers.
Now that makes good business sense!
Financial management is one of our Beyond Business Groups modules and we go into detail about cash flow and projections (as well as budgets and forecasting, break-even analysis, finance, policy and taxation).