When managing cash flows for small to medium enterprises, it’s important to have a simple but comprehensive management system to keep on track of your debtors. In fact, for individual companies, it’s possibly one of the most important things a business can do in order to avoid missed payments, poorly maintained financial data, and countless other future problems.
From trade credit (businesses lending funds to one another) and comprehensive background checks to poorly monitored customer payments, keeping on top of your external and internal business debts can help reduce financial burdens, boost your accounts receivable, and help your company to repay your own creditors in a more timely manner.
1 Implementing clarity amind invoice chaos
It sounds easy in principle. After all, what business doesn’t start out with a plan to manage its financial transactions with care? But when you’re in the thick of it, and multiple fees, loans, and invoices are quickly rushing in and out of your accounting department, how are you going to ensure that you’re avoiding unnecessary problems?
Well, it’s all a matter of preparation, communication, and self-reflection that can be summarised in 7 effective steps. Stick to these tips to ensure that your SME is staying one step ahead of its payments and receiving necessary funds on time.
2 Embrace the benefits of electronic invoices
E-invoices are a simple and sustainable way of ensuring that a customer or debtor receives an invoice promptly with more trackability for your business as well. Digital invoicing has become popular over the years, and with automated updates and reminders for customers to pay within the agreed-upon time frame, it’s not difficult to see why.
Generally speaking, an electronic invoice can be submitted in the following ways:
- An email directly from an accounts software platform
- An invoice sent directly to a customer portal
- An invoice that integrates with your accounting system
Either way, the accounting platform sends notifications to the customer on behalf of your business, which provides you with constant updates on the status of an invoice and more details about the payment history of regular customers.
3 Do you offer a discount for early payment?
As a way of persuading people to use their services again and to pay on time, many businesses will now offer some kind of incentive to help receive faster payment from a customer. In particular, discounts on an invoice or goods in exchange for payment by a certain early date have proven to be extremely effective.
However, this incentive is entirely dependent on many different factors, including the kind of industry you operate in, your company’s need for prompt payment, and your willingness to reduce prices for the sake of a faster resolution.
4 Confirm terms of payment before moving forward
If a new customer or client is under the impression that it’s perfectly fine to take longer than the standard limit of 30 days to pay their invoices, then chances are they probably will. To avoid this issue, agreeing to payment terms before moving forward is a great way of reducing unnecessary problems later.
Your business shouldn’t have to fret about managing to stay afloat until an invoice has been paid. It’s important to remember that you are providing goods or services with the understanding of prompt payment for them. Simply taking on a new client or workload and not nailing down specific payment dates is never going to lead to a mutually satisfactory outcome.
5 Follow it up and remind them of the agreed-upon dates
After sending out your invoice, wait a few days and reach out to politely ask about its status. Even if you have digital updates, there’s nothing wrong with a good old-fashioned phone call to confirm that they’ve received it and that they’re aware of the deadline for payment.
If you’re not comfortable being that forthright, you can use an update as an excuse to call the customer in question. In fact, you can even call to let them know it’s in their invoice portal as a polite reminder, instead of questioning when you’ll be paid.
For each of these scenarios, what matters most is that you write down and log the following aspects of your phone call:
- The time you called
- The person you spoke to
- What was said during the call
- What they confirmed with you regarding payment
Hopefully, it won’t come to a situation where you need to contact them again and complain, or continually ask for updates. However, if this is the case, the information above will help to bolster your case for a customer to uphold their end of the deal, and give you the necessary information to escalate your complaint.
You’re within your legal rights to insist on payment within 60 days of a business transaction, so if a longer repayment period wasn’t agreed upon previously, make them aware of the potential consequences and further interest on the amount that they may incur.
Conduct thorough credit checks
No one wants to feel as if they can’t trust a customer’s word, but for a small to medium business, sometimes that luxury simply isn’t viable. If a debtor happens to experience insolvency, issuing a credit note for months of hard work isn’t going to be fulfilled, and your finances will incur the wrath of an issue that could have easily been avoided with a simple background check.
The lesson here? A little admin at the beginning of a potential business relationship can save you a lot of hassle months down the road. You’re only protecting the interests of your business, so don’t be afraid to dig through a few background checks before making a final decision on a client.
6 Analyse your payment flexibility and system compatibility
Analysing the payment flexibility you offer can come in two main forms – digital flexibility and business flexibility. Both help to define what your company can and cannot allow when dealing with payments from customers.
On one hand, it’s important to have a system that’s compatible with other systems and can integrate seamlessly to ensure your business receives those funds on time. After all, there’s no point in offering up an e-invoice discount for quick payment only for a new customer to discover that your payment portals aren’t able to accommodate them!
On the other hand, it’s also vital that you’re clear and open about how you are able to take payments before agreeing to a contract. If you can’t offer a payment plan that gives customers the chance to make smaller monthly payments, or your company lives and dies by a 60-day window between delivery of services and payment, it’s essential to communicate that at the beginning.
7 Do your part to ensure prompt payment
Having that ability to challenge your own internal processes is vital to the final method of better managing your debtors – doing your part to facilitate faster payments. Failure to do this can lead to customers receiving and processing other invoices that arrived on time and putting yours on the back burner.
Waiting until the end of the month to send out all of your invoices is a recipe for disaster. Instead, make it a routine to raise invoices within a strict timeframe of work being completed. Be sure to keep the invoices accurate and double-check every detail before sending them off.
If you can show customers that you’re a fast, meticulous, and well-oiled financial machine, it gives them the motivation to respond in kind and pay up as soon as possible. As a company, you’re making the first move by delivering an invoice, you set the tone for how the rest of the relationships will pan out.
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