Running your own business can be extremely rewarding but there will always be times when it will be quite the opposite. Depending on the business, many factors will determine the success or failure of a small enterprise however the most common is cash flow. Outlined below are a few simple solutions to cash flow problems to help make your business ownership more rewarding.
Without the regular inward flow of cold, hard cash any business will die a natural death. Many small business owners know too well that operating in an uncertain economic environment means customers take more time to pay. Accounting Software Xero’s latest study of their users found that about 60% of invoices are paid late, and more than a third are at least 2 weeks late.
Dun & Bradstreet’s Trade Payments Analysis reports that businesses are waiting on average 45 days to receive payments on invoices– it’s actually at a historic low but that’s still almost seven weeks. When most small businesses set their terms at seven or fourteen days payment, this statistic is not only dangerous to the health of the business, but rising stress is dangerous to the health of the owner.
If you’re finding it hard to get your customers to pay you on time, there are some simple solutions:
1 – Discuss payment terms– Start as you mean to go on with new clients. Getting it sorted upfront sets out the expectations and reduces any confusion
2 – Pay upfront. Of course, the easiest way is to get full payment upfront, but this can be difficult for most service providers, particularly with new customers. Instead, ask for a part-payment, which could be 50%-70%, prior to the full service being delivered. This not only establishes a mutual commitment by both parties but also creates a more regular flow of cash into your business.
3 – Use an automatic payment service. This can be done for one-off or ongoing payments and assures you that you will be paid because the payment has already been scheduled from your customer’s bank account. Here’s another tip – where possible set up the deduction from a bank account instead of a credit card. It’s much harder to cancel the former and credit cards regularly expire. There are many reliable services available in Australia and the cost is surprisingly low. Type “direct debit payment services Australia” into your search engine, do some research and find the one that suits you best. Once set up, you’ll wonder why you didn’t do it earlier.
4 – Provide an incentive. Encourage your customers to pay before the due date by offering a small discount. Utility companies and councils have done this for decades and although it could reduce your profit a little, you’ll save by not having to chase late payers. The opposite of discounting is late-payment penalties or adding interest to overdue payments. Be careful with this practice because it can create more animosity when the original invoiced amount blows out of context. And it does nothing for ongoing customer relationships
5 – Invoice as soon as possible – As a small business operator managing many areas of the business can result in delays in invoicing. Make sure you invoice as soon as possible and use technology like accounting software to create professional recurring invoices or to invoice from your phone on the go
On the flipside, if your customers are dragging the chain, you could be having difficulty paying your bills. Knowing what it feels like, take the upper hand and explain the position to your creditors. Most will be happy to work out a payment schedule so that everyone wins.
For help with your small business speak with your advisor at Leenane Templeton Chartered Accountants and Business Advisors. Call (02) 4926 2300 or contact us.
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