When it comes to business stability, cashflow is king. If you run out of cash, your best-laid plans won’t matter. Recent economic turmoil has highlighted--perhaps more than ever before--how a smooth and orderly cashflow can keep your business in the black and moving forward through thick and thin.
One effective way to equalise your cashflow is to reduce debtor days. Customers are typically reluctant to part with their money, even if it’s to pay for much-needed goods and services. Consequently, they may drag their feet when it comes to paying invoices. Each day you have to run your business without customer payments, your cashflow becomes thinner and less predictable.
Giant international corporations might have enough resources to offer generous payment terms to their customers, but most of us can’t afford that. Waiting for payment can cause severe stress for business owners.
Here are a few strategies for reducing debtor days and establishing stable cashflow.
Leave no ambiguity
Evaluate your current invoices by asking these questions:
- Is the due date easy to see?
- Does the invoice clearly outline various payment options (bank transfers, cash, credit card, etc.)?
- Do you include options like “pay now,” “pay with instalments” or “pay on due date”?
Consider the physical layout of your invoice as well. If the page appears cluttered or confusing, you inadvertently create payment friction. Keep it simple.
Offer incentives
Offering incentives to clients can often accelerate the payment process, however it’s important to be aware of reducing your revenue and consider alternative ways to finance your debtors and working capital. Choosing the best option for your business can be explored by contacting Ulton’s advisory team.
Charge fees for late payment
On the other end of the spectrum, you can incentivise clients to pay on time by charging a fee for late payments. Communicate the terms and conditions of the fees clearly, so customers won’t be surprised if you charge them when they’re overdue.
If you do charge clients for late payment, give some warning. You could send an email reminder stating, “A late fee will be applied to your account if payment isn’t received in 10 days.” Your client will then have an opportunity to respond and won’t be surprised.
Use new technologies
One roadblock to collecting payments on time is an old payables system. If you haven’t researched new technologies lately, you might be surprised by the tools available for improving cashflow.
Automation may be the most impactful recent development. With an automated accounts receivable system, you can track each invoice’s status and see who has paid and how much is still outstanding. You can also program automatic reminders for critical moments in the payment cycle, avoiding problems and reducing your administration time. At Ulton, our Insights Team is equipped to assist your business in utilising financial technology.
Offer several payment methods
Banking continues to change, and you can make payment easier for customers by offering several options. If you have only accepted MasterCard, VISA and American Express in the past, you might consider adding alternatives like Zip, PayPal and Afterpay, although you should always consider any surcharges associated with these payment options. In some industries, cryptocurrency might even be an attractive form of payment. Talk with customers about their preferences.
Offer instalment payment options
For customers that are struggling to make payments, you may want to offer an instalment plan option. It’s better to collect some debt than none at all, and your patience during a difficult time could lead to long-term customer loyalty. Just be careful about overextending yourself by offering more credit than you can genuinely afford.
As we’ve seen in recent months, customers may struggle to pay on time during challenging economic conditions. However, late remittances can harm your cashflow. Use slow business periods to update your terms and conditions, reconsider your payment options and brainstorm ways to make it easier for customers to pay you.
You may need to clarify information on your website or invoices, update your software or improve your business systems. We can also help you evaluate your procedures and compare your debtor days to industry averages.
Invoice straight away
Cashflow hiccups can often be caused by delays in your own invoicing practices, not by any fault in your customers. To keep the wheels turning, don’t delay in sending your invoices, or even consider requesting a deposit for work to be performed.
Reach out to us at Ulton to learn more about cashflow, get assistance with your forecasting, better-utilise financial technology and clarify your working capital requirements. Together, we can help your business to operate on a firm financial footing and reach your goals.
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