Article by Mike Anderson (NSBC Founder & CEO)
Getting customers to pay on time is one of the biggest challenges for business owners and when the problem persists too long, it can ultimately shut down your business.
For any business, the amount of money flowing in or out is critical to its success. When money is tight, paying basic bills can get challenging. But when cash is plentiful, a business can invest in its future by expanding, buying new equipment, hiring key staff or retaining key staff by rewarding them further.
We see SMEs going out of business every day, in many cases due to cash flow as a result of late or non-payment.Prompt payment is vital to the cash flow of every business, and especially to smaller businesses. An important initiative powered by the NSBC is the Prompt Payment Code; a first of its kind initiative in South Africa. The Prompt Payment Code is about encouraging and promoting best practice between government, larger organisations and their SME suppliers. Signatories to the code commit to paying SMEs within 30 days.
Few things in business are as frustrating as a client who doesn’t pay promptly.
Here are a few simple methods you can adopt to keeping the cash flowing in:
Invoicing must be an immediate action. The quicker you execute, the quicker you will be paid. Also, if you delay the invoice, it indicates that you not in too much of a hurry to get paid. Business owners are often slow at getting their invoices out once they have completed their work for a customer. Remember that your client has no obligation to pay until they receive an invoice, so don’t wait.
Make payment terms crystal clear
You need to communicate the deadline on your quotes and invoices clearly as well as in all your telephone and e-mail follow-ups.
Make a personal connection with the “Money Team”
The key success factor in growing the top line is to build a sound relationship with the decision maker. What we forget to do is to also build a sound relationship with the person in the business that pays the accounts. Get personal with the “Money Team” and get them to pay you first.
Use the telephone to chase money
Many experts in the field agree that making phone calls can be up to 80% more effective than e-mails and letters. Prioritise your cash collection and chase the oldest and largest debts first.
Offer a range of payment options
Offer a range of payment options to your customers and put your payment methods on all proposals, invoices and statements. For example, you might accept credit cards, debit cards, cash and EFTs. Different methods will suit different customers, so offer as many options as possible.
Disarm the excuses
Getting excuses for a late payment is common. The three most common ones are
1) I never received the invoice
2) the invoice details are incorrect, or
3) I disagree with the invoice
To avoid this, call them five days after you send out the invoice to find out that they have in fact received the invoice. Ask them if they have any questions about the invoice and make sure they are aware the payment is due in 30 days. To elaborate further, ensure that all the correct details are on the invoice before sending the invoice out. Few customers will rush to query an invoice that doesn’t look right – they just won’t pay it. Going backwards and forwards in correcting invoices is a big contributor to delayed payments.
More invoices for smaller amounts
This is not always possible, but if it is possible, you want to avoid hitting your client with one, giant invoice. A client is more likely to sit on an invoice that is overwhelmingly large. Just make it easier for the client to pay you.
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