Reduce Your Debtors with these 9 Effective Strategies
One of my first bosses used to say, “The jobs not complete until the money’s in the bank”. At the time I didn’t realise the importance of what he was saying. Now, as someone who advises small business owners around managing cash flow, I find myself repeating his mantra.
Taking control of your collections makes such a difference to small businesses. It is critical. It provides business owners the cash flow to take care of their next project.
The time, cost & emotional energy invested in chasing up money is another drain on the profitability and enjoyment for most business owners.
Here’s a list of traits and strategies that are used by business owners to get paid quicker. Some are simple, some use technology and some might appear to be common sense, but all are vital nonetheless.
One: Do a great job.
If you do a great job & exceed expectations, people will pay you with no questions asked. Clients will be hesitant to pay only when you’ve done the opposite. Now, here’s a tip: try to ask for feedback from the client immediately after the job is done. Ask if they are happy or if they need changes made, and act as soon as possible.
Once the client is satisfied, proceed to chase the money with full confidence that there are no loose ends to tie up down the track.
Two: Invoice straight away.
Businesses take a lot out of our day. From management to HR to Operations, it’s a lot of work. But isn’t it funny that we sometimes tend to overlook the most important procedures amidst all the business chaos? Invoicing is one that is frequently overlooked. Many business owners will tend to procrastinate thinking it can be done later, but next thing you know, it’s now at the bottom of the pile and sometimes forgotten.
To avoid this happening, why not make a practice to invoice a job as soon as it is done? With the technology available nowadays (such as Xero), you can invoice anytime, anywhere, straight to your customer’s inbox.
Three: Agree to the price and payment terms.
It’s one thing to agree on the fee, which normally everyone focuses on, but it’s absolutely critical to agree on the terms and conditions on when the payment is going to be made. Will the fee be payable in advance? Will it be via progress payments or perhaps 60 days from End of the Month? These are all questions you and your client should agree on. If you’ve taken the time to document and agree on the payment terms, then you’ve set the expectations for the customer. If the payment terms are vague, you’re leaving yourself open.
In the case of a business where there are changes in scope (e.g. – A builder with variations), you should ensure that you have a system where the customer signs off on the additional charges and agrees when these will be paid for.
Four: Make it easy to pay - Create an online payment facility.
Once an invoice is issued and sent to clients, it is now up to them on how quickly they pay. If you do your part to provide them with the proper tools for easy payment, the chance of getting paid on time dramatically increases.
There are tons of online payment facilities that can provide your customers an efficient and quick payment method. Solutions like DEFT, BPAY, Square, Stripe & eWay make the process easy and efficient. If you don’t have these payment facilities now, give us a buzz at Fox Group and we could help set you up. You’ll be amazed at how much a difference it will make.
Five: Taking Money is better than waiting for money. Establish a direct debit option.
I highly recommend as part of your customer engagement process (mentioned in point 3) that you arrange to direct debit your customer. Taking the money via direct debit puts you in control of the process.
At the time of agreeing on the terms and conditions, get your customer to sign a direct debit authority. Let them know it’s “How we do it here”. Big businesses such as Telstra and finance companies all do this as their standard method of operation - and with solutions such as Ezi-debit out in the marketplace for small business owners, you should too!
Six: Know your customer.
Businesses will have customers from a variety of backgrounds, each with its own policies and procedures around supplier payments.
If you’ve studied your client and their business, you’ll have an idea of the best time to issue an invoice and chase payment. For example, if a client issues payments 30 days from the end of the month, you must do everything to ensure that they receive their invoice before the month is closed.
Often, corporate clients will have unusual month-end cut-offs (e.g. Final Friday of the month, 28th of each month), so make it your business to know your customer's policies. By doing this, you won’t miss the cutoff and end up waiting a further 30 days.
Seven: Changing your attitude.
This step is probably the area most business owners struggle with. Many business owners feel like their clients are doing them a favour by getting paid. In our opinion, as long as you’ve done a great job (See point 1), and agreed to the amount and terms of payment, then you’ve done your part of the deal. All the customer needs to do on their end of the bargain is to pay you.
Change your mindset and ask with confidence for payment. You have every right to expect to get paid.
Eight: Understanding your leverage.
Does your customer need you? If you have provided your services per the agreed price and terms (see point 3), then you can expect to get paid. If your client needs you, be mindful of the leverage you have.
You don’t have to continue providing goods or services for people who are in arrears. Consider putting people on stop credit. It may seem harsh, but it’s amazing the results this will deliver. There will always be cash in the system and people will find you the money if they know you are serious. I am not advocating holding your customer to ransom – just be aware of your leverage.
Nine: Follow up, Follow Up, Follow Up
Allocate time and resources around a structured follow-up process. Remember - the squeaky wheel gets the grease. You can automate a part of the follow-up process using easy-to-use Xero Add-ons like Chaser (https://chaserhq.com).
Utilising this technology will save you plenty of time and help with most of your debtors - freeing up your resources to really focus on the problem debtors.
Once you’ve been on top of all these, you’ll be amazed at how easier your life will become, and the time and energy you'll have for the business. Good cash flow increases profitability & business enjoyment.
Our experienced Business Advisers are always on hand to help with strategies to reduce your Debtors and improve your cash flow. You can book some time with them by calling (02) 4353 3889.