Bring forward your invoicing. Most businesses do a once-a-month cheque-run somewhere between the 21st to the 25th of the month. If you miss that cheque-run you will have to wait another 30 days to get paid, so don’t miss it. Submit your invoice early in the month to give it time to work its way from the post-pile, through the authorisation in-tray into payments.
2. Make friends with the Accounts Payable lady
Accounts Payable can be a tough job – all those suppliers hounding you for payment -so a friendly voice will cut through the noise. Every time you, or your staff, call a supplier’s Accounts Payable department work on creating a friendship. Your invoice will race up the payments queue and you will have more fun chasing your cash.
3. Follow up debtors quickly
It’s never too early to chase a debtor. Some businesses simply ignore their supplier invoices until they have been chased and then only make a payment when they have been harassed a few times
4. Follow up debtors consistently
If you don’t have the luxury of an accounts receivable department and are doing all the debtor collection yourself schedule in a regular time to do it. This works for two reasons. One, it will get you to actually do it – chasing debtors isn’t much fun and it’s easy to put it off – and two, it will remind you to make repeated calls to recalcitrant customers. So set aside some time (for example every Tuesday 9am for one hour) to commit to calling all your debtors.
5. Write it down
“The cheque is in the post” and other white lies come back to haunt Accounts Payable staff when they are written down verbatim by the supplier. It’s so much better to be able to say categorically “On Monday, May 25, you told me that you would send a payment on 1 June” than to vaguely recall a conversation.
6. Make it easy to pay you
Offer all the standard payment options. If you are dealing with consumers taking all the major credit cards is a must even though it is expensive. If you are a web-based business Paypal is extremely popular. If you are a service provider with regular customers (such as a day-care provider) offer direct debits, it makes it so much easier for you and your customer. And if you are dealing with businesses make sure you are set up for electronic fund transfers.
7. Call the person who hired you
If you are supplying a business that has more than a handful of people it’s very likely that the person who you “sold” to has little or nothing to do with the payments department. So as soon as your invoice passes the 30-day mark call up your contact and enlist their help. It really helps to have someone on the inside of a business batting for you – and they won’t mind. I have found myself in this position many times and have marched off to the Accounts Department incensed at the way my supplier has been treated.
8. Discuss the best way of getting paid before you start your work
Businesses mostly agree price but don’t discuss payment terms. So as well as making it clear that your terms are 30 days ask your customer what the best way is of ensuring that the payment will be processed quickly. If they are a large company for instance you might check whether it will speed up the process to address the invoice to the person who will actually authorise it rather than the Accounts Payable department.
9. Deposits and progress payments
If you are doing a project for a customer or buying something in especially for them always ask for a deposit and progress payments. This puts you firmly in the driving seat and you can simply down tools if they don’t pay on time.
So there we are, nine ways to improve your cash collections. But if you have room for one more, I have a tenth one – discounts.
Yes, offering discounts for prompt settlement of invoices is an option. But I didn’t include it in the list because the nine ways are free and this extra one will cost you real money.
If discounts work for you then go ahead and give them, but make sure that you factor this into your pricing. And be aware that many businesses will take the early settlement discount regardless of when they pay. Discounts are a bona fide option and can be very useful but try the options above – the free ones – first.
Author note: Australian Julia Bickerstaff runs two businesses: Butterfly Coaching and The Business Bakery. She is also a regular writer and speaker on small business matters.