I’m sure you’ve had an experience of some kind with customers or clients who can’t, won’t or simply don’t pay you. If you talk to any SME, they will have a story of someone not paying them. If they don’t have a story, then it’s one of two things. One, they aren’t telling the truth. Two they have an excellent and effective system or process in place so that they will never get burned. Having an effective debtors system in place is a key way to not end up in any tricky situation. Many female business women do not like talking about money. It’s time to change that taboo and look at the value that you’re creating rather than a price you’re charging. Clients or customers hire you to undertake a service or produce something useful to their organisation that they can’t do themselves.
In order to make a profit, you need customers who pay you. In order to run a business, you need cashflow. Getting money in regularly is key to your survival. If you use a good accounting system, then you’ll instantly know how long it is taking you to get paid and the software can also send automated reminders on this to your clients. This helps you with cash flow management and enables you to act quickly.
Here are a few suggestions to incorporate into your day to day business when dealing with clients. As every business is different, take the applicable section and apply it to your individual system. Remember, just because it may be outside industry norms, you should still consider it. If your competitors aren’t doing any of the below recommendations, that’s their concern. Not yours. Your main concern is the effective running of your business.
Introduce Staged Payments
Create a system with staged payments depending on the job, task, project or role. Ask for a deposit up front. It can be whatever percentage you need it to be – 10%, 33% or 50%. Thereafter, depending on deliverables, you can set other staged payments. The final payment could be upon receipt of work. There are also excellent online payment solutions that can integrate direct debits and recurring payments processing within your business so that payment can be made as soon as the invoice is issued.
Decide Credit Terms
Just because your industry has traditionally had a credit term doesn’t mean that you have to work with it. You can set your own terms, whether it’s to do with the amount of credit or the number of credit days.
If you are offering credit, decide on an amount and stick to it.
Feel free to check your client or customer’s credit history, especially if you are giving large amounts of credit. You are perfectly entitled to do it. Check out trade references that they give you. Make sure you look for what is not being said as well as what is being said. This is your business, if you are giving credit, you are taking a risk.
Offer an Incentive to Pay on Time
Some businesses offer an incentive to paying on time. For some businesses it works, for others it doesn’t. If you offer this, it need not be a deduction or a discount. It could be something value-added.
Write Down your Terms and Conditions
Whatever options you decide, always have written business credit payment terms. Before you sign a contract with a new client, make sure they are aware of your terms and conditions. Set expectations from the get-go.
Have your Admin in Order
Issue an invoice straight-away as soon as the sale, job, project is complete. It’s the time when the client is the most happiest as the work is done. Send the invoice straight away. Make sure the invoice is correct. If there are errors in VAT or unit pricing then this can delay payment as the invoice will need to be reissued. A good solution is also sending a reminder for payment before the balance is due and such a process can be automated very easily when you use a good accounts system in place.
Regularly monitor your credit limits and see who has gone back on their limit – either in terms of time or amounts. Depending on the relationship and if a client is over their limit, you may have to put a hold on their account. This is why it’s important to know your clients. Everyone can get into difficulty at some point so it may be rash to put a stop on someone who is a regular customer and a regular payer. However, do not be a pushover. You are not a bank or a charity.
What to Do if you have a Bad Debtor
If there is a dispute and you have a debtor that refuses to pay, the first thing to do is try to establish contact with them and have a conversation. Everything can be cleared up by simply talking it through. You can arrange for staged payments to be agreed or for the account to be on hold until full payment is made. However, if things get very tricky and there is no forthcoming conversation or communication, then you need to send debt chasing statements and thereafter continue to escalate the debt. Do not bury your head and hope it goes away because it won’t. There are some people out there who will rely on you not pursuing them.
In summary, ensure you have an effective debtors system in place, share and agree your terms and conditions with your customers in advance and have them sign you will get paid every time. Stay on top of your debtors days. You are running a business for a purpose and a profit, don’t let cashflow and bad debtors get in the way of that.
If you’d like to talk more about your business, talk to Angela O’Leary, Owner Manager of AG Associates. AG Associates is an accounting practice that specialises in affordable accounting and payroll solutions for the SME business owner. It’s new service Clarity combines online book- keeping with offline accounting to provide an instant snapshot of how a business is doing right now
For further information please contact Angela at Unit 11, Eastgate Way, Little Island, Cork. 021 4824723 or email@example.com