- cashflow, management, clients, debtors, invoicing
6 ways to keep in control of your debtors
Cash flow is the lifeblood of all businesses, small or large, and if your customers aren’t paying you on time then very soon your business will run into difficulties. So what can you do to make sure your customers pay you on time?
Read this helpful advice for business owners and financial managers to improve your customer relationships whilst at the same time encouraging them to pay for their goods or services on time.
1. Build a relationship
It’s important to maintain a good relationship with your customers and their staff because it’s human nature to keep the people that we like happy. If you have a bit of rapport with your customer then you’re more likely to be one of the first they will pay.
2. Make sure that you send your invoice out promptly
The sooner your customer receives your invoice, the sooner they will pay.
Customers will naturally try to extend any payment terms and you have to give them less ability to do so. A delay of just a single day when sending an invoice could result in you being paid 31 days later. For example, if a customer pays at the end of the month following the date of invoice then an invoice dated 30 June will be paid on 31 July. Raising the same invoice one day later on 1 July might result in payment on 31 August, one month later.
If your payment terms are to be paid a certain number of days after the invoice then don’t wait until the end of the month to raise your invoices, instead raise your bill as soon as the work is completed.
3. Make your payment terms clear
Make sure your terms and conditions clearly set out the time frame in which you expect to be paid. This will allow you to set expectations at the outset of any work and reduce any disputes later.
4. Automate your billing
A modern accounting package such as Xero will allow you to invoice your customers as soon as your work is finished – you can even do it from your phone, literally as you finish the job. The online invoice can even include a button allowing your customer to ‘Pay now’.
If you used your online accounts system to raise the quote for your customer (Xero does this too) then it’s as simple as clicking a button to raise the invoice for the work – no typing it all in again, no delays and hence significant time saving.
5. Automate your debt collection
We, and some of our clients, use a system called Satago to help automate chasing customers for payment. At certain times in the invoicing/payment cycle Satago will email our customers to remind them that either an invoice is about to come due for payment or is overdue for payment. We have seen customers pay ahead of the due date because they received an email telling them that an invoice was due for payment in 7 days time. A customer even sent an email saying ‘Many thanks for reminding us’!
An automated debt chasing system will ensure those customers that just need a gentle prod pay on time, leaving you more time to focus on any bigger issues.
6. Know your customers
There will always be some customers that try to delay paying you and you will learn over time who they are. Use that knowledge to focus on them to remove all barriers and excuses for paying you late. Learn who to speak to in order to get payments made. Speak to them to check they’ve received your invoice. Contact them ahead of the payment date to remind them that you are expecting them to pay on time. And don’t delay taking action if they fail to pay within the agreed terms.