Every company at one point or another has or will come across the dreaded time where they have struggled to get paid and have to chase debt that’s owed to them. For many varied reasons, some companies just don’t stick to the agreed payment strategy, and end up going over their Days Beyond Terms. (DBT)
Cash collection should not be an afterthought or a casual process, especially for smaller businesses. It needs to be hardwired into the day-to-day operational routines of every company, new and old. By taking the steps outlined below, businesses will do much more than simply leave cash collection to chance. When you start to get into debt is when your business starts to get into trouble, so make sure you are invoicing regularly and collecting cash.
It’s worth noting that poor cash flow management is always cited as the number one reason why new ventures go out of business. Companies want their money in the bank for as long as they can and as part of their payment strategy and will put off paying out to build interest. If you are not getting paid on time, this could affect your bills getting paid on time especially if you are a small business. This could then have a negative effect on your credit rating and possibly put your business in jeopardy.
Here are our top 10 tips for collecting cash:
- Establish clear payment terms for all of your customers. Be clear about when you expect to be paid before doing business with anyone. By setting up clear communication, there are less likely to be mistakes or any delayed payments based on confusion.
- Ask for payment up front if possible, however this may not always be necessary. What you can do, is offer an incentive for paying early, such as a discount, loyalty points or a free gift etc. By giving your customers an incentive to pay early, they will strive to do so; or at least rethink holding off.
- Ensure you have a signed contract or agreement in place with each customer. By having everything in writing you are protecting yourself legally and it can help you avoid arguments further down the line. Always have a signature on the dotted line when dealing with money.
- Issue your own paperwork on time. The sooner you issue a bill or an invoice to your customer, the sooner you’ll get paid. This also leaves no excuses for a payment to be delayed. If you need to, look online for tips on how to send an invoice if you struggle to do so yourself, or look for a service that offers online invoicing.
- Ensure your own paperwork is accurate. Don’t give anyone an excuse to delay payment because they need an invoice to be credited and reissued. Nothing will slow a payment down more than having to send invoices back and forth.
- Maintain a calendar. Make life easy for yourself by setting up prompts to issue and follow up invoices. By keeping on top of your invoices and finances, you are keeping on top of your customers.
- Don’t leave it too long. Ensure you are on top of all customer transactions and contact them on or near the payment date, not four weeks later. By doing this they will learn that you are not lenient with payment.
- Establish good working relationships with customers. Companies are more likely to pay people they want to carry on working with, so by establishing a good relationship and keeping on good terms, your customers are more likely to keep paying you regularly and on time.
- Make it easy for customers to pay your bills. Accept payments in multiple formats including cheques, cash, BACS and credit cards. It would also be massively beneficial if you allow your customers to pay on line via debit card or PayPal. By making it as easy as you can for them they will be more inclined and happier to pay rather than if they had to go out of their way to pay the bill.
- Make cash collection a clear responsibility for a named individual. If it’s the owner of the business, ensure that time is blocked out for cash collection activities once a week. If it’s a finance director, make sure they understand it’s their responsibility to chase people and when they need to do it. If they don’t have time to chase them themselves, employ a debt collection service to do it for you.
It is inevitable that at one point or another, you do end up with a customer or trader who is dragging their feet for way too long in payment or is refusing to pay you. So to combat this, Creditsafe has introduced a letter sending service called Debt Chaser. Debt Chaser is where our customers can go into the Creditsafe system to search for the debtor in question and enter the amount of debt owed. From here you can choose from a range of templates for debt recovery letters which Creditsafe will then send on your behalf. There is also the option to alter how often you would like them sent; whether it be automated on a weekly basis or sent as a one off. We chase your debtors so you don’t have to, however we do not collect the debt owed to you.
So there you have it, there is our top ten tips for collecting cash. Remember if you don’t get paid, your business won’t survive. Don’t make fatal mistakes at the beginning; you may not be able to get out of them.