Why does cash flow matter
When you sell goods or services, you deserve to get paid on time. You’re not a bank, so you’re not in the business of lending money. Well, when your customers take longer to pay than they agree to, you are essentially lending them money. With no interest! The quicker you get paid, the better you’re able to predict your cash flow and make important business decisions. So what can you do?
Get paid on time every time
The best way to get rid of accounts receivable issues is to collect payment up front. By adding a section to your contract that asks for payment details, you become the one who initiates payment and don't have to rely on your client to take action. You’ll of course need to set up a way to process payments on your end, like with QuickBooks Online Payments. Also, make sure that the way you collect contracts and payment information is secure, as you’ll be handling sensitive financial information.
Start out on the right foot
Even if you aren’t running the payments, you can still speed up getting paid by collecting important information from your clients. Add fields to your contract where clients can enter information that they require to get paid. Is a PO number required? Who is the billing contact if it is different from the person signing the contract. Do they require your W9 and banking information? Find that out ahead of time, along with who you’ll need to send it to.
Make it easy for them
If you limit the payment methods that you accept, you may be putting up a roadblock that delays your client from paying you. If you only accept ACH payments, consider allowing payment via credit card. If you don’t want to pay transaction fees, add a charge to credit card payments that covers that fee. While multiple payment options are recommended, we caution against accepting checks as mail fraud and postal delays are unfortunately becoming more common.
Set up an A/R review process
Do you know who owes you money and how much? How often do you check and make sure that you’re following up to get paid? When you’re running your business, the day-to-day often takes priority, and with only so much time in a day, back-end financial work can pile up. The key here is to make sure that your books are up to date. If you aren’t doing this on a regular schedule, you may want to enlist the help of a bookkeeper. They can help keep your financials updated, so that you know who owes you money, enabling you to take action. And if something is past due, make collecting a priority. The longer a balance exists, the less likely it is to be paid.
Data is your friend
While you may work with different clients, there’s a good chance that they have similarities that can tell you about YOUR business. Take a look at paid invoices to see if certain types of clients tend to pay quicker than others. Look for patterns and make decisions as to whether or not certain client types need to be interacted with differently regarding collecting payment.
My cash flow is killing me
Even with everything set up properly, you may still run into issues getting paid on time. However, there are still steps that can be taken if you are regularly running into this.
If cash flow is an issue, consider offering financial incentives to clients who habitually pay late. You don’t want to be giving money away, so don’t offer this to everyone. And if you do this, make sure that your discount is enough to entice your clients, but not so much that it significantly impacts revenue.
It’s in your best interest to show some understanding
Sometimes your clients might get into a bind and simply can’t pay you on time. While you can fight it, it’s easier and less expensive to come up with ways that avoid legal action. Consider offering a payment plan. Make sure that it’s a time-frame that works for both of you. Collecting smaller amounts of what you are owed over time, is certainly better than never collecting at all!
Who can help me and how
Running all aspects of your business takes a lot of time. Adding collections to that may not only be something that you don’t have time for, it may also be something that you aren’t comfortable doing. Let’s face it. Maintaining a good business relationship with your clients and talking about the money that they owe you don’t always fit together well.
The good news is, this is something that you can hire someone to handle for you. Some firms like ours will offer collections services, and will only charge you when they collect the money that you are owed. So while you’re spending your valuable time growing and operating your business, they’re spending their time chasing down payments for you.
What are my next steps
For years we’ve worked with small and medium sized businesses to help improve their cash flow. Whether you need someone to help create a custom accounts receivable process, or handle collections so that you can focus on the growth of your business, we’re here for you. Reach out and let us know how we can help. We’d love to hear from you!