June 2013

8 Steps to ensure you're Paid on Time

Cash by Bashed

Cash is King, Cash is always King!

As book-keepers we never cease to be amazed at how lax businesses can be in collecting what's due to them. If your customers are slow at paying then follow these 8 simple steps.

 

1. Clear procedures

It may sound obvious but ensure you have a defined set of procedures across the business that clearly set out the credit management strategy from the moment a customer first places an order to the full settlement of the invoice. This will improve efficiency and allow your accounts receivables team to adopt a harmonised and professional stance. Review your Aged Debtor list at least weekly - ensure it is up to date and accurate.

2. Knowledge is key

Know your customers. Before engaging with new customers and offering credit terms, perform credit checks (BookCheck can do this for you) and take the time to understand their payment patterns. This is also true for existing customers. Today’s climate means that many businesses are paying beyond terms to protect their own cash flow so it’s important to monitor existing clients for any changes in ratings and company health. If a customer becomes a persistent late payer, take a firm stance and put them on a 'stop list', warning them that further goods/services will not be supplied until all outstanding invoices are paid in full. Keeping in regular contact with customers provides the opportunity to become aware of any potential problems before it’s too late.

3. Speed and accuracy

Invoicing straight away may sound obvious, but this goes some way to reducing what can be an already lengthy process of getting your invoice paid as most customers won't pay until the invoice is received. Additionally, ensure all information is accurate and that your terms and conditions are clearly marked.

4. Make payment easy

Avoid the possibility of the ‘cheque is in the post’ excuse by offering your customers fast and simple payment methods such as direct debits, standing orders and BACS payment. Ensure the accepted payment methods are clearly displayed on your invoice as well as your details. Another way of working with customers to get payment in on time is to offer a small incentive for early payments by way of a discount.

5. Chase promptly

Frequent sales ledger reviews will enable you to quickly identify when credit terms have been exceeded. Acting quickly at this point will improve the chances of payment in full. A polite and professional approach, whilst remaining firm, will demonstrate that you are in control. Send statements where required as some customers won't pay otherwise. If this doesn’t have the desired effect, follow to the next stage of your credit control procedure. There is always the tricky balancing act of maintaining the relationship with the customer whilst trying to get your money in. Tapping into the resources of an outsourced debt collection agency can assist as it enables you to distance yourself from the process, preserving customer relationships whilst the agency focuses on collecting your debt. Recognise that you will be in competition with other suppliers also chasing for their payment.

6. Charge interest

Especially in the current climate, customers will use a raft of excuses to delay payment. Standing firm and charging statutory interest will encourage faster payment.

7. Focus on what you do best

Given its importance to the success of your business, credit control should be an everyday business task. However, with so many demands on a business owner’s time, maintaining the required focus on collecting money can be a drain on internal resource. Outsourcing your credit management can free up this internal resource, allowing it to be focused on winning new business and other core activities.

8. Say thank you

Customers that pay on time are worth their weight in gold. Ensure you thank those that do as this will help to build relationships and could potentially lead to follow up sales.
This entry was posted in Business Development and tagged in Payment, Business Discipline by bookchadmin

3 Essentials to grow a Company

Looking back on my time running my own company there are three things that I did consistently. I didn’t realise the importance. I just did it. 

There are five common myths about entrepreneurs:

In Residence at Bristol University, I saw the same three things in companies that were successful. So what is the magic? Customers, More Customers and Profit. To explain:
  1. Customers. There are two approaches to customer. Make a “one-off” sale or make a number of sales over a long period of time. I advocate the second approach since it maintains a long term income stream. We sold our customers a Messaging Server and then annually a support contract or upgrade to the latest version of software. The target was to retain as many customers as possible.
  2. More Customers. We kept the pipeline of new customers filled to ensure that the increase is greater than those leaving. For example, new customers purchased our Messaging Server due to reviews in magazines, customer referrals, etc. and some we lost because their companies went under, were bought, etc.
  3. Profit. Every sale must makes a profit to keep the company going. Making a profit means knowing the cost of supply of the product or service. For example, we sold Support contracts that would pay for approximately an hour of engineer’s time. On average each support contact would cost us 2.8 hours to resolve. On the face of it we made a loss (and the customer got excellent value for money). But we knew that only 1 in 8 contracts would result in a support incident. (If only we knew which one of eight not to sell!)
Once your company is generating profit then you have dramatically increased your freedom to operate. You can elect to take the profit as dividends; bonuses; more staff; continue innovation in product and/or process; new products; invest in new, external opportunities; etc. The choice is yours. Reproduced with permission from Brian Dorricott at Meteorical  
This entry was posted in Business Development and tagged in Profit, Customers, Entrepreneur by bookchadmin