Cash flow is the life blood of a successful business. Therefore, when overdue invoices start to get out of hand and are an evident issue in your aged debtor report (if you have one), you need to take back control to prevent it having a detrimental impact on your business.
One of the major causes of poor cash flow is late payments.
There may be many reasons why a customer may not be able to pay, and, though you may be sympathetic to those reasons, you cannot allow them to prevent you from expecting to be remunerated for services supplied or products delivered.
Weak forecasting may not provide a true picture of your business health when those debts are not taken seriously or are excluded from predictive reporting.
This may feel very doom and gloom but it’s critically important to address debt and ensure your business isn’t kidding itself into thinking its in a better position than it is.
You may not even be fully aware that debt is putting a strain on your business as you might be unwittingly dependant on big customers who pay on time and cover up the issue. But consider, what if one of those was to go under?
When it comes to sustaining a company's financial stability, cash management is a key component. Since “cash” is the primary asset used to pay obligations (whether you're an individual or company), it must be managed accordingly to maximize earnings. This impacts future growth for the company.
Consequences of aged debtors:
- Poor cash flow
- Impact your ability to pay your suppliers on time leading to suspension or credit limits of your own
- Overdependence on limited big customers
- Failure to leverage future growth due to limited funds
- Inability to repay investors
- Lead to increased borrowing
- Increased time chasing debtors over making focusing on new sales if you’re a small business or sole trader
- Security of the business especially in that first crucial year
- Inability to benchmark accurately within your industry and understand your place amongst competitors
What you can do right now:
We’ve had many companies approach us for help over the years and every time we have been able to turn their situation around. So, if any of the above bullets sound familiar to you, don’t despair, there is plenty you can do to improve your current situation.
- Accept you need to address this right away.
- If possible avoid further borrowing.
- Don’t under estimate the time it takes to perform administrative tasks, admit you may need help to get on top of this. You can’t do it all.
Next steps…Take action:
- The first thing you can do to improve timely payment is to make payments easier for your customers. Review your payment methods, are they simple, varied and accessible?
- Review your payment terms and reduce if necessary to prevent following a negative cash flow business model. This is where your customers have a longer payment term than your suppliers. Otherwise, in this instance you will always be behind.
- Review the design of your invoices. Keep them simple and ensure payment terms, accepted payment methods and payment due dates are clearly and prominently displayed.
- Supply invoices in multiple formats such as PDF via email, downloadable via a portal or by post in a physical format.
- Consider using a specialist cloud accounting software to automate the supply of professional invoices every time. At Blue Rocket we use several platforms including Sage, Quickbooks, KashFlow and Xero. All of them will help you to save time, become more organised and to have a better insight into your finances.
- Keep the lines of communication open with all customers, call to check the invoice has been received and again within 7 days of its due date reminding them of how they can make payment. They might open up about why they are struggling to pay on time and you can find a way to help them, whether it is simplifying a payment process or extending their payment term on a custom basis.
- Chase invoices as soon as they become overdue using a multi-channels approach such as call, email, SMS notifications or post. Document each communication so you have a paper trail to avoid excuses and support any evidence required if it comes to escalating the debt recovery.
- Focus your efforts on recovering the largest debts which have the biggest impact on your cash flow. This will help to safeguard your business from unmanageable debts mounting up.
- Monitor credit scores, you would hope a customer that you have a good relationship with would tell you if they were experiencing financial difficulty, but this is not always the case. It is also good practice to do this before offering credit to a new customer.
- Send customers their statement of accounts monthly so that they can get a full view of what is due and upcoming.
- Put goods or services on hold until payment is collected. As uncomfortable as this may be, you can deliver this news to the customer in a polite and professional manner in the interest of protecting your business.
- If your repeated attempts to collect outstanding payment from customers are unsuccessful and the debt is mounting up, it may be time to look at alternative options available for collecting debts. These include mediation, making a court claim or sending a statuary demand – the appropriate method is dependent on the amount of the money owed. At this point, further costs can be incurred so we do advise to doing everything possible before reaching this point. We hope the above serves as a good credit control resource for your debt collection procedures.
If this all sounds too much and you just don’t have the time or resources to get on top of your outstanding or aged debtors get in touch with us today, we can help.
We’ve had some incredible success stories from customers who have recovered from some pretty dire positions through utilising our Credit Control service.
We can relieve you of the pressure, allowing you additional time to look at how you can use your newly increased cashflow to benefit your business.
Our credit control offering includes:
- Sending correspondence
- Weekly calls
- Follow-up letters
- Keeping the pressure on until the invoice is paid
Don’t lose time and money, get in touch today.