Cash flow is king in the world of business, so effective debtor management can either make or break your business's viability.
Regardless of whether you are a sole trader, contractor or running a business, it is vital to keep customer payments flowing in so you can manage your own expenses and outgoings. If someone doesn't pay you for goods or services rendered, you are left carrying these costs until the bill is settled. This can put strain on your own finances.
Invoicing tips for success
Here are some suggestions which may increase the likelihood you will be paid on time for the work you do:
Provide your customer with cost estimates or quotes. These should set out the work you will be undertaking, as well detailing prices and timeframes. If your prices are estimates ensure the customer is aware of this, and keep them informed during the job for any variances or extensions you may foresee.
Ask for a 50% deposit prior to commencing work, especially if you have to purchase materials for the job. This will ease the cash burden on you.
Ensure you have the correct contact details for your client and their accounts payable department. Where possible, try to collect more than just a name and phone number. It is important to be able to contact your client both during and after the job.
- Invoice promptly after the goods are dispatched or the job is completed. Doing so means the value of your product or service will still be fresh in your customer's mind. Leaving billing too long will also cause the customer to downgrade your invoice's importance.
Make sure your invoices contain payment details eg your bank account number. Consider offering a range of payment options to suit your customer's preferences. Making it easy for people to pay you increases the chances they will do so.
Have terms and conditions of trade in place setting out how you do business. T&C's help protect your rights, limit potential liabilities and provide some degree of security for the recovery of debt. Make sure your customers know about your T&C's by including them on your invoices and/or adding them to your website.
Gentle reminders of upcoming or recently passed payment due dates may also work, especially for customers who you know are very busy or likely to forget.
Chasing overdue debtors
However even the best accounts receivable processes won't work on every customer. People may be experiencing financial difficulties, or having cash flow issues due to their own debtors not paying. Regardless of the reasons behind non-payment, it is important to have strategies in place for dealing with overdue invoices:
Keep good records of the invoices you issue. Keep an eye on those which are overdue and the length of time they have been outstanding
Ensure you follow up promptly once an invoice becomes overdue. Staying on top of the situation means your customer is less likely to forget or ignore your bill
Establish a procedure for dealing with invoices not paid on time. For instance email a reminder two days after the due date, followed by a phone call if it is still unpaid after seven days. Keep these initial follow-ups brief and courteous, as the customer may have simply overlooked your bill.
Uncomfortable phone calls concerning overdue money are never easy, however ignoring the issue won't make it go away either. In fact it may even result in you having to write off money as bad debts.
Establishing clear procedures for your debtor control will not only help you be more efficient and organised; it will also ensure cash keeps flowing in the right direction - into your bank account!
If you would like assistance managing your cash flow, drop us a line. Our team of experienced Chartered Accountants can offer guidance on best practices, as well as recommendations for accounting software which can streamline your processes.