Cash Flow and Debt Collection Tips
Do you often wonder if you’ll have enough money in the bank to pay the bills or wages each week / fortnight / month and can see that your debtors are quite high and have been overdue for a few weeks?
What are you doing to ensure that the funds are available to meet your obligations but also save for future tough times, or even the New Years break where most staff aren’t working but still need to get paid?
This is quite often a bugbear for business owners and one of the many reasons debtors aren’t followed up is the fear that your customer will leave you and go elsewhere if you ask for payment. But the truth is, you are running a business and while you often make friends with customers, you can’t operate a business on friendship alone. While yes it is important to maintain your customer relationships which will hopefully bring in more business either from them or their other business friendships, you do need to be paid so that you can pay your expenses – otherwise it comes out of the business owners pocket and do you really want to do that?
So what can you do to have funds coming in and improve the cash flow?
- Prepare a cash flow budget. This allows you to see when your known expenses are due to be paid so you know how much needs to come in to cover them.
- Put at least 30% of the funds that come in aside. Ideally this helps cover GST, income tax and some extra funds for rainy days, quiet times and cover the next lot of bills and wages. The more you save, the better – it’ll certainly help reduce stress.
- Maintain a healthy relationship with your customers. Your customers are your bread and butter, so stay in touch with them regularly and they will feel that you care about them and not just their money.
- Send regular reminders for due and overdue invoices. Some systems can do this automatically for you, some need a human touch. Though, a human touch is often much nicer.
- Call the clients who are overdue to find out why they are overdue. Can a payment arrangement be made?
- Keep a list – because if your customers are regularly overdue, maybe you need to switch tactics and put them on to a prepaid account, stop service until paid or something else.
- However, if the stress of collecting funds from a customer who is also a friend is a bit much, take on an external party to assist in debt collection. This allows for separation of business and friendship and means you can talk business with the customer while they talk finance with the collections team.
We can assist you in funds management, be it preparation of cash flow budget (with your input), cash flow management, review your current debt collection processes, and contact your debtors on your behalf. We want to help you be cash flow positive, have funds in the bank for the rainy days and maintain strong relationships with your customers. Give us a call to see how else we might be able to assist your business.