WHAT WOULD IT mean to your business if you could cut your debtor days in half?
Customer acquisition is all well and good, but if you can’t get paid on time, cash-flow problems will engulf your business. Many small businesses in Ireland work to tight margins, and learning to protect your cash-flow is a skill worth its weight in gold.
The situation has become so tenuous that ISME, the small business association, set up a ‘Credit Watch’ survey in 2014 to lobby government and large businesses to act more responsibly in paying SMEs.
Despite the problems for businesses ensuring they get paid, there are plenty of proactive measures that owners can take to combat the problem.
With some expert advice and careful management, customers can be managed to ensure outstanding invoices are paid within agreed terms.
This will lead to cost savings as you will no longer need to rely on expensive short-term funding or invoice discounting, and it will also allow for far more accurate financial projections.
Here are our top tips for taking control of your cash flow:
1. The first key action item is to draft a clearly written credit and payment policy. This will prevent problems and make sure that both staff and clients understand what your expectations and rules of engagement are. This policy is vital for every business, and if your business doesn’t have one you should get one now.
2. Include specific due dates, in large text, on your invoices. Nothing is clearer than a properly labelled invoice.
3. Spend some time establishing a credit control and collections function in your business. This means assigning the role to specific individuals and building a process for chasing up customers with reminder communications for when to escalate the matter and when to ultimately look at legal options. Remember this function can be done either in-house or outsourced.
4. Use technology as much as possible to speed up the process. Don’t send letters, send emails. Can you set up a payment portal on your website to allow clients to pay conveniently? Do you accept cheques that can get lost and take time to clear? Get these clients paying electronically. The best of all is get clients signed up with a direct debit or standing order.
5. When things go wrong, forget about written reminders – these can be deleted or ignored. When there is a problem, the only way to solve it is phone calls or face-to-face meetings.
6. Keep cool. Dealing with clients that are not paying you or are late is not about getting rough. It’s about understanding the situation, realising when there is a genuine problem, just disorganisation or an unwillingness to pay. Whichever of these three categories the case falls into is important to understand so you can act accordingly.
7. Be clear. Don’t end conversations, calls or emails with an open-ended outcome. Be very clear so everyone knows where they stand.
8. Document everything. If you have anything more than 20-30 clients, you should really have a system in place to manage invoices, communication, emails, call recordings. When things go wrong the paper trail matters.
9. If promises are made and then broken, act. Nothing shows bad faith like promising to do something and not following through. The only thing that is worse than this is doing nothing about it
10. Get help. Your core business and key skills are probably not managing payments. You will waste so much time and effort trying to deal with this if it’s not something you are familiar with. Your accountant can help you, as can your peers in business. There are also professional companies who specialise in this and can help.
Stephen Curtis is a founding partner of DFI Consulting, a Dublin-based firm specialising in cash management, credit control and collections.