Five Tips to Improve Cash Flow Management
Cash flow collections can be a tricky game. Here are our top five tips that you can use to improve cash flow management in your business.
1. Expectations are everything
New client? Like any relationship, it makes good business sense to have a frank and clear discussion up-front to clarify your mutual expectations. When it comes time to discuss credit and payment terms, it pays to spell-out the rules: for example: – Credit is available, but on the understanding that invoices are paid on time. – If you’re willing to allow some flexibility, define the circumstances when an extension of time to pay would be offered so that everyone’s clear from the get go.
2. Tighten up your terms
Your terms and conditions are important. In the same way that you get your car serviced, it’s a good idea to get your terms checked by a lawyer regularly to ensure they’re doing their job. At a minimum they should include:
– How goods/services are to be supplied;
– How your terms are accepted;
– When and how payment must be made;
– What the consequence is for failing to pay on time; and
– Personal guarantees, retention of title, disclaimers, warranties and registration of security interests.
Your terms become crucial when a customer fails to pay an invoice or is dissatisfied with the goods/services provided, and you need to limit your liability or recover the debt.
3. Invoicing: easy, timely, accurate
Your invoice has a better chance of not being put into the ‘too hard basket’ if it’s easy to understand, well laid out, and most importantly, accurate. We’ve all received invoices that don’t make sense: it’s irritating. So take the time to ensure your invoice is correctly rendered and properly itemised.
Offer a variety of payment options to make life easier for your clients. Offer credit card, direct credit, cheque. Payment services like BPAY or PayPal might also be an option. And finally, once the work has been done, get the invoice out ASAP to get the payment in quick.
Larger businesses with complex accounts might benefit from investing in a Financial Relationship Management (FRM) software package to help streamline billing, accounts receivable, and payment. FRM software even allows customers to ‘self-help’ their accounts via a client portal.
4. Monitor for warning signs
Just because everything seems to stack up with your new client at the beginning, this does not mean that everything will always go smoothly. Our fact sheet Financial Distress: the 10 Warning Signs outlines the key indicators to look out for. Depending on the level of risk, you might also consider registering with a credit bureau like CreditorWatch, so that you can:
– access credit reports and credit scores on any business in Australia to assess their credit worthiness,
– review essential historical data for example Australian Securities and Investments Commission (ASIC) updates, director changes and potentially adverse data like defaults / judgments,
– monitor your customers and receive email alerts if an important change occurs such as a court judgement, default, or administration, and
– register defaults from your non-paying customers to help warn other suppliers and also improve your chances of being paid.
5. Late payment? Swift follow up!
Water-tight accounts receivable procedures will help your business plug any late payment leaks before your accounts dry up. As soon as an account is close to becoming overdue, be ready to go with a friendly follow-up call. The longer an overdue account is left to sit idle, the higher your chances of non-payment become.
A quick phone call to your customer the day after payment falls due is essential. Any arrangement that is made between your company and your customer (including an extension of time to pay or a payment plan) should be immediately documented on your systems and put in writing to your customer on the same day.
Need help with debt management? Optimum Recoveries services include:
– Generating and sending invoices
– Developing more efficient invoicing procedures
– Developing innovative communication methods to encourage prompt payment
– Making follow-up cash-flow collection calls
– Dispute resolution that focuses on reaching a mutually acceptable and positive outcome in a timely manner
You’ll benefit from:
– A more efficient allocation of internal resources
– Valuable customer insights for financial risk management decisions and customer acquisition decisions
– Improved cash flow
– Enhanced customer service, satisfaction and reliability
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