It doesn’t matter how small your organisation is, you have the right to be paid on time.
Many start-ups and small firms like mine struggle with late payments. I used to find it difficult and embarrassing to chase invoices and worried about annoying my customers. Late payments affected my cashflow. Here’s how I became a changed man.
The funds in my business bank account started to diminish. I was struggling to pay my suppliers. I thought back to my old company which had a strict credit control policy. On Day 1 over the invoice due date, late payers were placed on ‘stop’. If they could do it, why couldn’t I?
First, I needed a process. I had no formal structure and no way to manage our cashflow. I realised it was stressing me out and destabilising my business and I was acting as a bank for my customers.
I came up with a process after a lot of trial and error. Following these 10 steps has saved me a lot of time, improved my cashflow and probably saved my business:
- Have a very clear payments section in your company Terms and Conditions. It’s well worth paying a solicitor to do them.
- Use accountancy software. It automates much of the process such as invoice reminders, cashflow forecasts, integration with Banks for auto reconciling, plus a heap of 3rd party plugins for recurring income, direct debits and credit card payments (even autopayments on credit cards). The systems also tell you how many invoices are overdue and their value. I can go on about the benefits of automation for hours.
- Before you sign a contract make sure you understand how and when you will be paid and do a credit check. What’s the approval process for payments? What information you need to put on invoices such as a PO number? Are there any special processes? Check the customer’s payment terms e.g. 30 days from the date of the invoice or 30 days from the end of the month? If they pay in 60 days, and you need to be paid in 14 days, negotiate an earlier payment date. Don’t just accept the customer’s payment terms. Waiting 60 days could play havoc your cash flow. Don’t be afraid to ask for deposits or split payments if they will help you keep your business afloat. This is the hardest bit, but if you can’t manage your cashflow while waiting to be paid, it could be better for your business to turn down the work.
- All our contracts are digital now. We use Adobe Sign. It tells you when the contract is signed, stores a copy in the cloud, and you can download it locally. When you send a contract or a proposal, refer to your own T&Cs, put your payment terms on there and clearly set out the date your payment will be due. Take the initiative.
- Send the invoice, with all the necessary info, to the correct department and person. It’s highly unlikely the person who gave you the work is the person responsible for your invoice and payments. Make sure you have followed point 3.
- Put your bank details on your invoice along with any other necessary information such as VAT number. Make it possible for the client to pay you instantly by allowing a credit card/debit card payment. All our invoices give the option of a Bank Transfer or Card payment.
- Make sure your invoices have a payment reminder switched on. We send out 7 notifications, via email, which is quicker and easier to track.
- Always follow up an invoice reminder with a phone call asking for a firm date when payment will be made.
- Monitor your cash flow regularly. Make sure you set up a report you can run instantly, and use a cash forecast tool which has dashboards that are easy to understand.
- Don’t be afraid to chase and demand payments and don’t be afraid to stop working for a continuously late payer.
We stick rigidly to our 10-step process now. It’s ingrained. We constantly review it to see if we can improve the speed and efficacy of getting paid.
We used to get paid on average, in 55 days. The average is now 33 days. We have:
- More time to service our clients
- Been able to employ more staff
- Moved to bigger offices
- Invested in new equipment.
Having everything automated makes it a lot easier and using cashflow forecasts helps us manage our business better. If you have a manual process ditch it ASAP and automate it.
Cocoonfxmedia Ltd is a digital agency specialising in web design and digital marketing, delivering measurable marketing solutions and online activities for businesses. Cocoonfxmedia is a member of the Greater Birmingham Chamber of Commerce and their ethos is to work in partnership to TRANSCEND expectations.