A healthy cash flow is crucial for all businesses, especially during the first year. One of the main challenges of being a business owner is ensuring there’s more money coming into the firm than expenditure.
No matter how high your turnover is, just a few clients not making payments on time can be the downfall of a company. Credit control is key to avoiding problems with finance. Here are some tips for maintaining effective credit control:
Solid terms
Decide what your credit terms will be before you start trading, if possible. Make your requirements for payment clear for all clients. Your payment terms may depend on external factors, but receiving payment within seven days would be the ideal solution. Rather than explaining to each client, publish your settlement terms on your company website or on the invoices, so that it is clear when the amount is due.
Flexibility
Accept settlement of an invoice in as many ways as you can, to make it easier for a client to pay. Cheques, credit or debit cards and PayPal are all used on a regular basis, and will help to avoid difficulties. If a client makes the same payment on a regular basis, offer a small discount for setting up a standing order, so that you will know when the money is due.
Be smart
Carry out credit checks for all customers to identify potential risks. Although it could be expensive to credit check everyone, set a limit so that all clients who owe over a specified limit will be checked. Only allow extended credit to customers with a good credit rating.
Incentives
Offer discounts or another incentive for paying promptly. If a client is experiencing genuine difficulties with their own cash flow, they may be more likely to pay on time if they will save some money.
Implement procedures
Create a procedure for dealing with late payments. Send out a reminder as soon as the payment deadline has been missed, giving a fixed amount of time to pay the overdue amount. You could charge interest on late payments, and reminding clients of this may motivate them to pay in a timely manner.
Although you need to look after your customers, you have to tackle late payments and persistent offenders to avoid problems with your business. There may be a genuine reason for not making a prompt payment, in which case you can arrange a payment plan to suit both parties.
How do you tackle late payers? Please use the comments box to let us know.