7 ways to ensure you get paid on time

   

There are three Cs to running a successful business: Cash, cash and cash.

As long as you’ve got plenty of cash coming into your business (and not quite as much flowing out), you have a viable operation.

Generating a positive cash flow is tough when you first start up. But soon you will have a certain amount of work coming in, and as long as you are keeping a tight control on your costs, you should have a healthy cash flow.

The key to a successful cash flow is good planning. Know exactly when payments are due in and out of your bank account, and don’t be afraid to be picky about the figures (this is one area where attention to detail really does pay off).

One of the main things you can do to help that cash flow planning is get paid on time. That’s tough, with a culture among many UK businesses that it’s OK to extend credit terms without asking.

Use Bytestart’s handy guide to get paid on time and make your cash flow planning a doddle:

1) Set out very clear terms of sale up front: You should get a set of standard terms & conditions drawn up by a solicitor. These should be signed by every client to show their acceptance. A client is more likely to pay on time if they have agreed to pay you interest on outstanding debts from the day they are due. Don’t be tempted to skip this process to get a client on board more quickly – it will probably come back to bite you in the future. And especially don’t skip it when you deal with big businesses… they are often the worse payers.

2) Do credit checks: Giving a client 30 days to pay should be a conscious decision based on facts, not an automatic right. After all, you wouldn’t give credit to a new client that was about to go out of business or owed thousands to others. The only way to know for sure is to do a credit check.

It will cost you to do this. There are a couple of suggested rules to help reduce this cost and target only the potential high-risk clients. First off set a credit ceiling, for example you don’t credit check anyone with an order under £500 or £1,000. Your business and average order size will set this limit.

Next make a priority list of clients to check according to the size of their debt, or potential debt (i.e. if they will be ordering from you every month for the next year). You can get a good credit check on the internet, which will confirm full customer details, financial results, how good they are at paying other suppliers, any county court judgements and a recommended credit rating.

• Try our company credit checking service.

3) Get trade references: It’s fine to ask new clients for these, especially if it’s a bigger sale. Ask them for the details of two or three suppliers and contact all of them. You’ll need the name and address, how long they have been supplying your client, the average order value supplied, and how promptly payment is made. Offer to reciprocate. Remember that your new client will not supply you with the details of unhappy suppliers, so assume the references you get are “best case scenarios”.

4) Use your eyes and ears: Every time you speak to staff working for your new client, ask them politely how business is. You’re looking out for worrying phrases such as “things are a bit slow right now”. Remember if their cash flow is poor, it’s going to affect yours. Do your new client’s premises look how you’d expect? Well maintained or dowdy? Are they staffed correctly or desperately under-staffed in an attempt to cut costs? The state of premises and staff can give a great insight into a business.

5) Offer a discount for prompt payment: This can be a smart strategy if promoted properly. Offer all clients a percentage discount if they pay their invoice early, say within 7 days. Some of your clients will jump at this (probably those with the best cash flow themselves), and the money you “lose” will be more than offset against the money you spend chasing late debts. Smart businesses build this discount into their pricing structure, so they effectively give themselves an extra 10% if businesses don’t pay early.

If you are going to offer this to your clients it needs to be marketed well. Mark the early payment price on the invoice. And get some postcards or flyers printed that you can enclosed with every invoice sent. Don’t assume a client will know that you do this… you need to put it in front of them regularly to get them to react to it.

6) Have clutter-free invoices: Many businesses use their invoices as an extra marketing tool. That’s OK, but remember the main purpose of an invoice is to get money out your client quickly and efficiently. It’s worth stripping any clutter off your invoice and examining it to see what message it is sending to your client. Does it clearly state exactly when the invoice is due? Psychologically, people are more likely to respond if you put the day as well as the date.

And spell out the different options for payment. Make it clear that you welcome payments by BACS (better for you as the money arrives straight into your account) and give your sort code and account number. If you accept cheques, give the business name they should be made payable to. Also give your clients the option to pay by credit or debit card by phoning your office.

If you don’t have a card machine, then set yourself up with an online payment system like Google Checkout. You can send links to people so they can pay with a card online. If you're interested in email invoices (rather than paper invoices), at Bytestart we use Blinksale.

7) Take swift action on late payments: Have a clear process for chasing debts the day they become overdue. Most debt agencies advise that the longer you leave it, the worse a problem will get… clients rarely pay an overdue debt without strong reminders. The idea here is to show clients that you are not a weak company with poor credit control. Over time you will educate them to pay you promptly. Some businesses even go as far as naming and shaming their clients on website such as 60 Days.

Remember to get professional advice from a qualified person before taking any action. Don’t rely purely on information contained in this article.

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