7 immediate actions to take to improve cash flow

Action 1: Terms of Trade

Get this right and you’ll be better placed if your other forms of credit go wrong.

Terms of trade help establish your legal relationship with your customer. If you are serious about your business DO NOT copy another business’ terms of trade. Instead invest in specialist advice to ensure YOUR terms of trade protect YOU and give you every chance to get paid. Be sure to get your customer to agree and sign your terms before you supply goods or commence work. They won’t apply if you don’t get them signed. Instead of using the confusing credit period of ‘20th of the month following’ be very specific and use a term such as ‘Due 14 days from invoice date’.

Action 2: Credit Assessment

Don’t be the last one to find out things have changed.

It sounds obvious but before you give credit, make sure you know who you are giving it to and understand their track record in repaying other companies and/or people (i.e. credit check your customers).The checking should be done regularly if you have an ongoing credit relationship with your customers. Individual credit ratings and people’s ability to repay debt can change over time, even more so with a business.

Credit agencies have a service whereby you can set up ‘credit alerts’ that might tell you when one of your customers has a negative credit event. We have information on how you can do this.

Action 3: Offer Multiple Payment Options

A streamlined billing and payment process including multiple payment options help enable clients to pay on time.

Generally, your customers will want to pay you. Make it as easy as possible for them to do so by providing multiple payment methods such as credit card, cheque, Paypal, Fee Funding and internet banking. Similarly, offer multiple payment options. These could include:

• A discount for upfront payment,
• 50% now and 50% on completion,
• OR instalments of up to 12 months with Fee Funding.

We recommend you use a Digital Payment Platform to curate all your payment options-they’re affordable and we have one you can create online.

Action 4: Prompt communication

The most effective and cost-efficient method to address slow payers is by telephone.

If you don’t get paid within your terms of credit (e.g. 14 days from date of invoice), DO NOT leave it another 30 days before contacting your customer. If your process is to email or post monthly statements before following up by telephone, the invoice could be 70+ days overdue before you make personal contact. Consider this, if people don’t pay you for a long time you’re effectively giving them free credit. This is what we call ‘playing bank’ for your client, and it goes against every principle of cash flow management. Contact us for a proven professional service telephone script as this is the most effective way we know to help you recover your unpaid invoice revenue.

If you don’t like making the calls (and let’s face it, most people hate doing this), consider engaging a Virtual Ledger Management solution. Our ledger management service is affordable and highly effective.

Action 5: Create An Escalation Plan

Develop an escalation timeline and stick to it.

Expect that sometimes customers will be slow payers and others may default completely. Plan in advance what your options are to escalate recovery and how you will respond to different scenarios.

Some may be:

• When a customer asks the question: “Can I pay you when I get paid?” what will you say?
• At what stage will you charge interest?
• When will you stop supplying goods or services?
• When will you send the invoice to a debt collector?

Having your escalation plan in place prior to needing it will reduce your stress, enable you to take decisive action and communicate this to the clients who have failed to pay you.

Action 6: Consequences

Expect to be taken advantage of if you don’t enforce consequences of late payment.

Like everything in life, there needs to be consequences for late payment. Serial slow payers have been known to “play off” two of your team (e.g. Accounts Receivable and Partner) so ensure everyone is on the same page by keeping good notes of prior conversations, and making sure everyone is committed to the planned escalation timeline. Rather than threatening ultimate escalation too soon (e.g. “If you don’t pay I’ll send you to a debt collector”) and then not following through, a good tactic is to have some early, smaller consequences (e.g. losing an early payment discount) that demonstrate your intention to follow through, as ultimately you might need to.

Action 7: Resource or outsource

An effective accounts receivable function is the best investment you can make in your future cash flow.

If you choose to manage your credit policy and accounts receivable in-house, ensure the following:

• People: Are they trained, enthusiastic and suitable for the accounts receivable job?
• Skill: Do your accounts receivable people know the appropriate legislation, your escalation process and have the negotiation skills to facilitate payments?
• Time: Is chasing slow payers a priority or a job squeezed in around other priority roles i.e. are slow payers followed up sporadically?
• Measurement: do you measure improvement and the management of accounts receivable i.e. is someone accountable for this performance?

Try our specialised outsourced AR solution

Are you too busy on current work or developing new business to follow up slow payers? Consider engaging a specialist accounts receivable solution like smartAR Virtual Ledger Management. It’s cost effective, personalised, results-driven and one of the best investments you can make towards consistent positive cash flow.