Getting cash during difficult times can be a challenge when your debtors start to slow down on the length of time they take to pay your business for the services or goods they buy from it. Less profitable businesses often act to preserve cash flow and unfortunately it can become survival of the fittest.
Ensuring your customers pay on time and keep cash flowing into your business comes down to having efficient and effective credit control procedures in place to protect your business. It also shows your customers that you are on the ball in the fight against late payment.
Putting good processes in place also sends a message that your business is providing a great service and expects to be paid on time. So what are the things that will help your business withstand tougher economic times?
Have a credit control strategy
While it may seem obvious, many organisations I visit don’t have straightforward credit control processes. It does not have to be complex to ensure it is effective and that your business gets paid on time, every time.
Workflow and automation are key components. Decide on the day-to-day processes and use technology to ensure as much as possible is automated to prevent things slipping through the net.
So what does a Business Process Model look like? I’ve included a screenshot below to show how such a process can be automated in a tool like Greentree ERP’s BPM Module. This takes your staff through the process from end-to-end and in tools such as this, the process can be clearly defined for your specific business needs.
Invoice immediately and ensure it is accurate
Issuing your invoices on time and without mistakes is important to managing cash flow in your business. Wherever possible, moving from paper-based invoicing to electronic forms of invoicing will not only speed up the process, it will also enable your team to catch and correct any mistakes before your invoices are sent.
Make your payment terms clear
Invoicing on time and following up promptly sets expectations.
If your organisation deals in volume, such as a wholesale or distribution company, then it’s important to ensure your customers clearly understand your business and payment terms to keep payments coming in on time. In a service organisation, you may want to consider staging payments in a contract at key milestones rather than waiting until a job is complete.
Ensure payment terms are clear from the beginning and that they are included on your invoices and statements, along with conditions of business.
Have visibility of all invoices as they become due
In managing cash flow, there is nothing like being proactive. While you can run an aged debtors report daily to find out what is nearing due, having visibility of outstanding balances in real-time is preferable. The Greentree ERP desktop software, for example, can show this:
Know your customers
Understanding your customer base and being aware of any potential financial difficulties is important. Due diligence starts with running basic credit checks on a regular basis and not just for new business. Monitoring payment trends for your clients via your ERP tools, particularly increasing payment terms, can raise potential cash flow flags early so that your business can respond.
Make it easy for customers to pay
Simplifying the ways your customers can pay is a good idea because people – and businesses – prefer simple processes. Supplying your bank details on your invoices encourages electronic fund transfers rather than slowing down payment via cheques that takes time to clear. Another option, depending on the nature of your business, is direct debit.
Don’t wait to chase payments
If your customer payments start to slip, following up sooner rather than later as the debt becomes due is critical. ‘Educating’ your customers by being consistent in how and when you’ll chase payment on a regular basis will ensure that slow payers soon get the message.
Understand your customers’ needs, but don’t let debt get out of hand
It is important to have excellent relationships with your customers and have an understanding of their current position regarding payments. This enables your management team to make judgement calls about issues rather than applying an automatic stop.
However, for the majority of your customers, where you don’t receive payment, stop supply of goods and services immediately, inform them of the action and the reasons why. Being polite but firm about the situation and reassure them that services will resume as normal on payment. Automating your processes will ensure that your credit control strategy will not let these things slip through.
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Scott Graham is one of the Directors of Kinetic Information Systems. He started his career in the UK as an accountant in practice and then industry. Scott has been in the software industry for over 18 years in the UK and over the past six years down under. You can connect with Scott via his LinkedIn profile linkedin.com/in/scottgrahamkinetic