No matter how good you might be at selling, if you don’t have a clear payment program for your services and an efficient accounts receivable function, your business will never thrive.
Collecting payment for services is a fact of life. If customers or clients enter into a transaction with you there is an expectation that fees for services are paid. May I suggest that if you have been experiencing slow or perhaps ‘no’ payment, that you conduct an Accounts Receivable Audit and include the following points in your investigation.
Once the deal is done, does your client enter into a formal agreement that clearly spells out the services to be delivered for the fees payable?
Deposits & Down Payments
Pre-GFC deposits were a little ad hoc. Post-GFC it’s a whole other story, deposits are common place and an expected part of doing business. All new business requires additional upfront work to bed-in new work, and your deposit should reflect this. If it doesn’t, you might find your hours expended in wages are more than your income.
Implement payments that are paid upon achievement of milestones or progress payments will keep money flowing in throughout the life of larger or longer term projects.
Do you clearly set your expectations for payment? At every opportunity include your terms, and this can include indicating the date the payment is to be received. While efficient clients will take note of your requirement for 30 days, often they’ll push the envelope to 60. Unless otherwise negotiated, courteous but firm compliance to your terms is a prerequisite.
Firm & Courteous
Ensure your accounts staff have a clear procedure for issuing invoices on time and following up at a reasonable interval to make certain payments are received. Coach your staff or provide them with training about how to pursue overdue accounts so that they are not fobbed-off by a client who feigns being offended or upset by the call. While quality clients will be proactive about communicating with you in the event of their own cash flow issues and temporary inability to pay, bad clients will try anything to avoid payment. In the long term, clients like this are simply not sustainable.
Line of Credit
Banking has changed considerably. Indeed, willingness to negotiate has created plenty of opportunities for business to self-fund without overtly high over-draw facilities. If you don’t have one already, talk to your banker about lines of credit that you can access in the event of a cash flow emergency.
Profit is one thing, cash flow is quite another. If at the end of the day, your expenditures for doing business and your day-to-day operations outweigh the amount of cash flowing in, regardless of the number of sales you have on your books, you and your business will be stressed.
For cash flow solutions please contact your Core Business adviser.