When was the last time you ran into trouble with your cashflow? It might have been years ago, and you're still recovering from the debt. It might have been at the start of this year, and you're still struggling to keep your head above the water. Maintaining cashflow is one of the most important parts of running a successful business, but you're at the mercy of your customers.
When customers don't pay their invoices on time, and it forces you to miss bill payments, it could affect your personal finances and even your credit report. But what can you do to ensure customers pay on time, and is there a solution if they don't?
Invoicing is key
You need to provide prompt, clear, concise invoices.
No matter who the client is, no matter how much they owe you, and no matter what your relationship with them is like, you need to provide prompt, clear, concise invoices.
People aren't going to pay you if they don't have an invoice, because they don't have to. They likely know what they owe you, but if they can hold onto their money a little longer while you sort the billing out on your end, they will. The sooner you get a customer an invoice, the sooner you'll have the funds in your account.
Invoices aren't just slips of paper with the amount the customer owes you on it, however. They're official financial records that tell your customer how much they owe, how to pay, what your credit terms are, and how you'll collect the debt if they don't pay on time. Using a debt collection service shouldn't be a last resort after you've waited weeks and weeks past the due date for the payment. If you let them know that you work with a debt collection agency such as Cashflow Finance, they could be more inclined to pay faster.
It takes an Australian business an average of 14.4 days past the due date to pay an invoice. It takes big businesses (those with more than 500 employees) 18.2 days past the due date. As an SME that relies on some bigger clients, you could be waiting longer than others to receive what you're owed for the goods or services you've already provided. Clear invoicing is vital to the continued healthy operation of your business.
Know where your risk lies
You'll have some idea where most of your high-risk debt lies. It could be a company or an individual paying their invoices late constantly. If these parties suddenly order double the amount they usually do, you could be waiting twice as long for payment.
Constantly analyse where your risk lies, and come up with solutions to minimise these areas.
Constantly analyse where your risk lies, and come up with solutions to minimise these areas. Dun & Bradstreet analysis shows that for a business turning over $10 million per annum, reducing their debtor days from 60 to 55 results in a cashflow increase of more than $135,000. Reducing your days sales outstanding (DSO) period can greatly increase the income of your business, and thus your financial health.
Drive sales as much as physically possible
Sales are your bread and butter. No new sales means your company will stagnate, even if your customer base remains the same, and they order the same quantity of goods each month. Businesses should always be looking for new ways to grow, and sales is the impetus for that.
Invest in a solid sales team or strategy, and review it each month. Find what works in your market segment and run with it. Growing your customer base will increase your monthly turnover and drive growth in your business, which could lead to new opportunities down the track.
For more information about improving your business cashflow with debtor finance and the services of Cashflow Finance, get in touch today.