Get paid on time

How to ensure your bills get paid on time and in full

Cash is king! The survival of your business depends on it no matter what stage of the business cycle we are in. 

One of the biggest influences on your cash is your credit risk and accounts receivable function. Late payments and unpaid invoices can have significant detrimental impacts on business cash flow but avoiding the cash flow crunch can be a difficult task.

The following ideas will help to get your accounts receivable function into tip top shape:

Create a credit risk strategy that will deliver sustainable cash flow

One of the critical features of effective cash flow management is ensuring that your customers pay on time. So, developing processes which make sure this happens should be the core of your credit risk strategy. This includes, conducting appropriate risk-based checks prior to the extension of credit as well as developing appropriate systems to enable invoices to be issued and followed up promptly.

Keep in mind that a credit risk strategy will not be effective without the appropriate resources to support it. This is a challenge for many SMEs and is a key reason why a number of firms seek outside help with this area of their business.

Know your customer (and potential new clients too)

Know your customer has become a much more common term since the introduction of anti-money laundering laws. For your small business, AML requirements may not be relevant but, that doesn't make the principles of know your customer any less valid.

 The know your customer process should start prior to the extension of credit and it should continue throughout the customer lifecycle. Conducting a credit check is the first step - this simple action can save a significant amount of time and money by avoiding the burden of customers that are unlikely to pay on time or at all.

                                                                                                                      Conduct a credit check now >>

Be clear about your trading terms from the very beginning

Businesses that fail to clearly establish credit terms at the outset of a relationship are significantly more likely to suffer from cash flow problems. Not having the correct system in place empowers the customer to dictate terms, thus negatively impacting your cash position. Don't fall into this trap! Establish clear methods and terms of payment. Also, always remember that the terms stated on an invoice will not be binding unless the customer has read and agreed to your credit terms (always get it in writing).

When setting your terms there are a few things you should consider:

  • What is the standard credit period for your industry?
  • What credit terms suit your business best and allow you to effectively manage your cash?
  • Will you lose customers by setting your terms lower than your competitors? If so, is it worth losing a customer if all your other clients pay their accounts within your specified terms?

The important thing to remember is that you need to set terms that will work for your business -you cannot let your clients dictate terms as you are the one that needs to be able to cover your costs.

Issue your invoices promptly

You cannot expect your customers to pay their bills promptly if you don't issue your invoices in the same manner. It may sound silly, but SMEs (and big firms for that matter) often get bogged down with the other tasks that have to be done (especially with end of month deadlines) and the invoicing gets left till the very last minute.

The benefit larger firms have over SMEs is that they usually have a separate division to handle their accounts. Many SMEs don't have this luxury so it's important they set aside the time to complete this vital task.

Follow-up is also important - don't wait weeks before you make the dreaded call. Act immediately once a bill has reached overdue status.

                                                                                Need to call in the debt collectors? Call 13 23 33 today.

Think carefully about giving people an extension on their bill

It's highly likely that being an SME you could write a book with the million and one excuses you've been given for why people can't pay their bill on time. The difficulty you face is being able to determine when there is a genuine need for a customer to be given a little breathing space. There are no hard and fast rules on this - you simply need to judge the customer's situation based on your previous trading history and determine whether your business can afford to give the client some additional time to settle their account. Be careful though - don't let this become a habit!

Extending credit to customers will always involve a level of risk but it also provides significant opportunities to grow your business. So, the trick is to ensure you have good credit control mechanisms in place that allow you to extend credit whilst effectively managing your risk.

Are you facing difficulties with seriously delinquent debtors and considering legal action? Find out more about what's involved >> 


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