So armed with this knowledge what can we do as business owners to help improve our Cash Flow. Your debtors are the customers that owe you money. A KPI that you should certainly monitor is Debtors Days (how many days on average sales are outstanding at any one time). By focusing on this KPI week on week you will certainly see an improvement in cash flow as the Debtors Days fall.
What measures can you take to help?
1. Get the Bookkeeping Right
Ensure that your business has an efficient and effective bookkeeping process in place. One thing is for sure, you won’t get paid if your customer has not received an Invoice. If you don’t already have a piece of software in place to assist in your invoicing process we would always recommend to our clients to put one in place. There are a number of cloud solutions now available at very reasonable prices which can help with the automation of issuing invoices. A solution like Surf Accounts will allow you to set up an Invoice template which you can easily edit for all your customers and then issue Invoices with a few clicks. This ensures that customers are billed on a timely basis. It also allows you to monitor what invoices are unpaid and for how long.
2. Agree Terms
Prior to commencing work or agreeing a trade why not issue a proposal or quotation along with the payment terms which gets agreed.Ensure all of this is in writing. If you have never dealt with a particular customer before now is also a good time to carry out some simple credit checks.
If the work you are carrying out is going to involve a large working capital investment from your business (time or materials) why not consider requesting a deposit or stage payments over the course of the project.
3. Credit Control Procedure
You don’t have to wait until there is a problem before implementing your credit control policy. This policy and procedure should be part of the normal course for your business with particular actions being followed depending on the status of an unpaid Invoice.
- Aged debtors Report (using a system like the one mentioned at step 1) should be run on a set day and time each week
- The report should be sorted by amount and then oldest. By focusing on these amounts you will notice the quickest impact on your cash flow
- Set up an automated reminder system. Certain bookkeeping systems will allow you to set up reminder e mails to be issued as Invoices become due for payment or go past due.
- Ensure you are contacting the correct person in the customer organisation. This has to be the person who not only has the authority to make payments but the person who physically makes those payments also.
4. Receiving Payments
Technology today allows several ways that you can receive payments. Make it easy for your customer to pay you by having as many payment options available as possible – cheque, online, credit card and debit card are the more traditional options. With various new apps it is also possible to create a “pay here” button on the invoices you e mail which will redirect the customer to a payment portal. There are various providers of this type of payment service and the costs are manageable and are far less than traditional methods. The benefit of having received payment immediately makes the small transaction fee value for money.