Trying to manage your cash flow and run a small business can be a challenge.
Clients often ask us what options they have when a customer hasn’t paid them and we can advise them on the legal process that is available to all small businesses, but often the problem can be avoided by getting all stages in the client/customer relationship right.
We’ve put together 5 top tips to help keep the cash flow wheel turning but concentrated on the start of the relationship, when the client first agrees to pay you money in exchange for supplying some goods or service.
1. Make sure you know what they expect
There is no better feeling than getting a long awaited yes to a proposal or quote you’ve been working on, but whilst a verbal confirmation is great to get things moving, you need to get confirmation in writing to make sure you know exactly what they are expecting .
If its a bigger organisation, obtain an official Purchase Order number or document, if its a smaller business, an email or signed quotation would be a good start.
2. Let them know what you expect
If you haven’t already sent T&Cs over with your quote, now is the time to do so – in particular make sure that they understand your payment terms and are happy to comply with them. Businesses such as web design and creative industries should be able to request staged payments or request deposits at the start of and during projects.
Make sure you let them know if your terms of payment are other than 30 days, as most accounts systems will default to this, unless otherwise advised. It is quite normal for service based businesses to request payment in 7 or 14 days after the date of the invoice, and if this is the case, then make sure your customer/client knows that. You may not get paid in 7, but you should get paid in 30 as a result!
3. Check them out
You may not feel that you need to do this with all your clients, but as you grow the business and more people find you, there will be some customers that you would like to carry out a credit check on.
You may still want to do business with someone who has a history of late paying, for various reasons, but make sure you protect yourself with the extra knowledge, and adjust your payment terms accordingly.
You could even ask for references from other suppliers, but also be aware that they will only supply references for suppliers they have a good relationship with!
4. Send clear invoices
An invoice doesn’t have to look exactly like the original quote, with all the fine details of how the project will be delivered, but it does need to look clear and be simple to read quickly by the person authorising or processing it for payment. You could attached a copy of the original quote that has been accepted, or cross refer to an purchase order number issued by the person buying your services.
It may be possible to send it straight to the accounts department, but they will need to know the basics – date, invoice number, amount (with appropriate VAT splits), PO (Purchase Order) numbers, who the invoice is from, payment terms, etc.
Put your bank account details on the invoice and indicate that this is your preferred method of payment.Often bank transfers are easier and quicker for accounts departments to process payment for, as they can be authorised electronically, and avoid the excuse that there isn’t a second person around to sign a cheque.
5. Understand who will be paying the invoice
If you are working for a larger organisation, find out what the process is for your invoice to be paid – does the invoice need to be sent to the person who you have had contact with so far, or does it need to go straight to the accounts department?
It pays to find a good contact within the accounts department, and contact them before the invoice is due for payment. Treat this as a courtesy call to check they actually have the invoice, does it have all the information they need to pass it for payment, find out if it has been approved for payment, and when it is likely to be paid.
If you are working for a customer on a regular basis, treat this contact with accounts as part of your relationship management, and helps to put a person behind the invoice. Use it as opportunity to create Top of Mind Awareness!
This is just one of the spokes in the wheel of cash flow, but getting it right at the beginning can help avoid issues later down the line. How do you manage this in your business?