Having loads of jobs booked into the diary and being busy in your business is all well and good, but if you’re finding it tough to get clients to pay – your cash flow can quickly run dry!
Keeping on top of cash flow is crucial to any business. With better processes in place to collect in that all-important cash, however, you can find it flows into your business much more readily, helping keep you afloat.
These few tips could have an immediate impact in helping improve cash flow – and release the stranglehold it has on your business.
Check if they can pay!
This might not be appropriate for smaller jobs, but if you’ve bagged a big contract worth a good wedge of cash, there’s something you need to do before breaking out a celebratory drink to two.
Check they can pay!
As much as you might want to make this mega sale, if a customer is unable or unlikely to pay on time you have to ask yourself if it’s worth it. Just think of the repercussions for your business if you throw loads of money, time and effort at a job to have nothing come back.
We would suggest you conduct a credit check as a sensible precaution, or request references from other companies who have supplied them with services, before entering into a contract.
Just as a potential client might want to vet their suppliers, it’s perfectly reasonable when large sums are on the line that you also vet the client!
If you’re left in any doubt as to whether you’ll be paid, and paid in a timely manner, you have to make an informed decision as to whether to proceed.
Set out clear payment terms
This should be embedded in any tradesman’s sales process – but we often find it’s not.
MAKE SURE IT’S CRYSTAL CLEAR WHEN PAYMENT IS EXPECTED!
Including clear-cut payment terms when you book in a job will help both you and your customer. The customer will know they need to have the readies at the ready and you know when that payment should hit your bank account.
If you’re working with larger businesses, this might involve a bit of negotiation. They might expect a 60-day agreement from suppliers, for example, but if this is unmanageable from your perspective, make sure this is ironed out and agreeable terms are reached before the order form is signed.
Get it down in black and white that you expect payment within 14, 30 or 45 days of invoice depending on the agreement made, or even request part-payment up front.
If everyone knows where they stand, it should make it more difficult to wriggle out of payment when it’s due.
Send out invoices – promptly!
Do you wait until the end of the month to send your invoices?
Why?!
As soon as a job is completed, finalise the paperwork and pass the invoice for payment.
So many trades businesses put off their invoicing and do a job-lot at the end of the month but this could mean you’re waiting unnecessarily for cash to come in.
If you complete a job in the first week of a month, waiting until the end of the month to invoice with 30-day terms means you’re effectively offering the client 60 days to pay.
Ensure accuracy
Don’t give a client reason to delay!
Make sure all your invoices are clearly set out and above all – accurate. Give your customers no reason to query anything, otherwise you’re giving them a prime excuse to not pay.
Also, make sure you’re sending it to the right person, department or place!
Offer a reminder rather than chasing debts
It’s probably not a job you relish, but credit control is a necessary evil when it comes to managing cash flow. Don’t leave it until the due date (or after) to remind clients that their payment is outstanding.
A friendly reminder a week before the deadline by email or telephone can work wonders. It also stops you feeling like you’re chasing for overdue debts so takes away all the awkwardness.
An email could be worded as simply as:
Dear X,
This is a polite reminder that payment of invoice no. XXX for [details of work completed] is due within the next two weeks as per our agreed payment terms.
We would appreciate it if you could schedule this for prompt payment by the due date.
Thank you in advance and best regards,
Do you have a procedure, or penalties in place for non-payment?
You should have a procedure in place for payment – sending invoices is the most basic form of this. But what do you do when a customer persistently fails to pay?
As with our advice to set clear payment terms, we also suggest you set out in your contract terms and conditions what will happen if you do not receive payment on time.
- Will they receive reminder notices?
- Are extra charges incurred if an invoice is not settled within a set time limit?
- Will they face legal proceedings?
Make sure these processes are in place and act on them if necessary.
Offer incentives for swift payment
Everyone likes to save money, and you can use this to your advantage.
Offer a discount for payment up-front or early payment of your invoice. You might be surprised how attractive this can be to a customer! Think about a parking ticket – do you pay within 14 days when it’s £60, or wait until it doubles?
But why should you drop your price, I hear you say?
Think of it this way. The benefits of a client paying promptly can far outweigh the small loss you make on offering the reduction. It will also save you the cost and hassle of chasing monies in the long run.
Make it easy to pay
You might prefer your customers to pay you a certain way, by bank transfer for example. But does that suit all of your customers?
Ask them how they prefer to pay and do what you can to fit in with them.
Perhaps they don’t like online banking.
Perhaps they’re a business with a payment system that isn’t in sync with yours.
Being flexible on how people pay can prevent costly delays to seeing the cash in your account. The easier you make it for them, the better it will be for you.
Do you have to wait for completion?
Do you find jobs often leave you out of pocket?
It might be a time-consuming project, or one that has to be completed in phases.
Maybe you’ll need to invest in tools, resources, materials or even additional labour.
If this is the case, think about creating a payment plan so you don’t have to wait to complete the work before getting paid.
Ask for 50% payment up front to cover costs followed by the remaining 50% on completion. Or for longer-term projects, break down the total into a monthly fee for the lifetime of the project, rather than charging one lump sum at the beginning or the end. Paying little and often can help both parties manage the financial burden of a high-value item better.
Prepare for pinch-points
Do you have months where you’re run off your feet, but then see dips in workload at other times?
Landscaping work is in high demand in the warmer months, for example, whereas plumbers tend to be busy in winter when burst pipes and dodgy boilers need emergency attention.
Planning how to manage the low-points in terms of cash flow is vital if you’re going to survive.
Think about how you can still keep orders coming in during the slower periods.
Could you offer a promotion on certain work, for example? Or, could you diversify what you offer to fill the gap?
If none of these work for you, you need to find a way of stockpiling the profits in the good times, to see you through the lean.
At Get Smart Accountants we work with our clients to drive growth and help them achieve their dreams.
If you’d like some advice or support to get your business moving in the right direction, then we’d love to hear from you.
Call Emma or Paul on 01902 212937
#growthriveprosper
