Business is picking up, new start-ups are sprouting into life, people are hiring and every business has the chance to grow their revenue. Only finance managers will know the real struggle behind all this movement within business. If your customer base grows, it means more companies for your finance manager to chase when it comes to getting paid. Although business has improved in general, late payments haven’t. In fact, the average UK business spends over 130 hours a year chasing invoices, and it is a constant battle between your finance managers and customers to get your customers to pay.
Negotiations are happening every day in every company, whether it is your finance or credit managers calling to request payment, check on the status of a pending invoice or even restructuring repayment terms. There is always an opportunity there for your staff to reign in more money for your company sooner rather than later.
Finance managers are in a prime position to negotiate more cash coming into the business quicker. They have the control to freeze accounts, give credit, take it away, demand payment and restructure payment terms. They can even choose who the company will do business with, so in total, they have a lot of leverage when it comes to negotiating cashflow. Negotiation is all about leverage, and the party with the most leverage are usually the party that wins. That doesn’t mean you should advise your finance managers to freeze all your customers’ accounts until they pay, it’s just giving your staff some leverage to play with when liaising with customers who need to pay.
Here are some tips on how to negotiate your cashflow.
Stay on top of your invoices
When your services or product have been dispatched, make sure your finance manager or credit controller has a reminder set for when they need to start chasing payment. Setting up some kind of schedule will lessen human error, so try to log every sale you do. Many businesses try to keep cash in the bank for as long as they can to balance out their accounts, so if they haven’t been pushed to pay, many won’t. Get your invoices out early, along with reminders and follow up calls. The earlier you start to push for payment the earlier you will get paid.
Encourage your teams to communicate
Communication is key to any successful task. One reoccurring complaint from companies who deal with suppliers is that they are only contacted when the supplier wants payment. Encourage your account managers to build a relationship with their customers. Email customers to check how they’re doing and to ensure they’re happy with the product. Therefore when your finance department chase them for payment, it won’t be the first level of communication they have had with your company since purchasing. People like people; if there is a genuine relationship between a supplier and a customer they are more likely to pay on time.
Incentives have been around for a long time, especially in the sales industry; however have you ever thought of applying them to your customers’ payment terms? Discounts or offers act as a great incentive to get paid early. For example, if they pay upfront, offer a 10% discount, if they pay within 10 days, offer 5%. Or if you don’t want to lose money on this order in particular, offer them discount on their next order so you are able to manage your cashflow better with advanced forecasting. Decrease the value of the discount the longer they take to pay, and add a ‘late payment’ charge if they go beyond their term. Always have these kind of incentives and fee’s written into a contract before the deal goes ahead, the last thing a company needs is an angry customer that has been charged a ‘late payment’ fee and wasn’t aware of it.
Be wary of extending payment terms
The longer a customer takes to pay you the longer you will have to float their balance in your cashflow, so shorter payment terms are always in the better interest of your company. Always credit check whoever you are thinking of dealing with beforehand, and then issue them a credit limit. A Creditsafe credit report will give you a credit score and a suggested credit limit to extend to customers, however if you want to set your own, check their payment behaviour on one of our credit reports first so you can see how they pay their bills.
Every business is different, and your credit controllers will know what sort of limits they can afford to offer on behalf of your company. Setting a credit limit could be something like this-
For high-risk customers, require cash on-demand, or ask for 50% upfront and require the rest after a short period of time, such as 5-10 days. For medium risk customers, require a 20% deposit up-front and give the customer approximately 15 days to pay. For low-risk customers, provide a standard net-30 for all invoices; however consider offering a credit limit.
Don’t be afraid to be firm
If your customer refuses to pay you after their term has ended, don’t be afraid to get a debt recovery firm involved, or you could even go to court. Read our blog on legal vs debt recovery for advice on which avenue to go down when collecting money owed to you.
Always remember, the sooner money comes into your business the better your cashflow will be. Shorter payment terms are the way forward, so don’t deal with companies that have a bad payment history as it could be setting your business up for a fall.