Late payments are the eliminators of small business. In the 2019 survey by the NSBC, cash flow ranked as the number one reason why small businesses didn’t grow and may be the reason that many small businesses don’t survive past the three-year mark. But what can you do to help ensure your small business continues to thrive and get paid on time. Here are eleven points to keep in mind.
1. Create a credit policy
It is critical that you know how you will deal with credit in your business. You should clearly state the following in your credit policy:
- The process of qualifying a customer for credit and the amount of credit to offer them.
- The process of how you will follow up on an outstanding invoice.
With these two processes defined in your policy, you will have a consistent way to deal with credit in your business. You should also be aware that this document is a living document and should be reassessed yearly.
2. Do a credit check on your customer
If you are starting a big deal with a customer, you have to do a credit check. You need to make sure that the business can pay for your product or service. You should also contact the references given by your customer to see what type of payers they are. With this knowledge, you can make an informed decision of whether or not to take them on board as a client.
3. Know who to speak to about the money
Do you know who to speak to about payments and invoicing. Your contact at the business may not be the one who has access to the purse strings, therefore if possible it is important to speak directly to the person who will be responsible for paying your invoice.
4. Get it in writing
Before you start any work you must get your customer to sign a payment terms agreement where they confirm when they will pay according to the timeline you negotiated. For small business who do work in steps, you could organise a payment plan where the customer pays when you reached an agreed milestone. This will ensure you both stick to the deadlines.
5. Ask for a deposit
It is imperative that you ask for a deposit on large orders, custom orders, or customers who have a questionable credit record. If possible your deposit should cover your expenses, so that should the deal go sour your cash flow will be minimally affected.
6. Be accurate when invoicing
One of the main hinderances to late payments is that the invoice which you supply your customer with has some critical information missing. You should ensure you have the following is on your invoice:
- Name of the company
- Purchase order number/ name of the person or department who placed the order
- Bank details
- Amount due
- A clear description of the product or service you delivered.
- Your payment terms
You should also check with the accounts department of your customer if there is any other information you may need to supply. You may need to put your VAT number or business registration number on the document.
All this information should be professional and uncluttered on your invoice. You can use Wave to help you with your invoicing.
7. Invoice promptly
This point is just as important as being accurate. If you don’t invoice promptly, your customer may feel that you don’t take prompt payment seriously, it may make you feel a bit awkward when you need to follow up on the payment and it may create confusion with your customer who may not remember what the invoice is for.
There are many mobile apps linked to cloud accounting systems which can be used to invoice your customer when you leave their premise.
8. Pick up the phone
When you have sent out your reminder for payment and the customer has not paid, it is crucial that you pick up the phone. You need to contact the customer and speak to them. Be polite in your interaction with the customer and try to understand why there has been a delay in paying your invoice.
9. Have multiple payment options
If it is feasible for your business, you should offer your customer a variety of ways to pay you. There are many different payment options available. People can pay by debit card, credit card, electronic fund transfer (EFT), Mobicred, and Zapper to name a few.
10. Deny new orders on an overdue account
Many times customers may ask you for one more job before they pay you. You need to refuse this request. People have to pay the account they have due to you before you carry on doing work with them.
11. Look at the payment patterns of current customers
By tracking and reviewing the payment patterns of your current customers, you can pick up if there could be a problem. This will help you to have a gentle word with your customer and see how you can continue to work together.
Article provided by the NSBC