In this blog I’m going to share 7 tips to get paid quicker. All tried and tested so they should help you, franchisee or not.
I bang on repeatedly about the massive importance of good cash flow. Far more businesses fail due to poor cash flow than a lack of sales.
Getting the money in is often treated as a little final add-on to the exciting stuff of doing the work or making the sale. A boring, embarrassing job given to the accounts people. But remember – until the money is in the bank, a sale is basically a gift to your customer. Get your head round that, and your attitude to debt collection will move in the right direction.
1. Know where you are now
The starting point is to find out where you are right now. Get hold of an aged debtors report which shows you who owes you what and how old those debts are. You can easily spot potential collection problems early, and focus your collection efforts more efficiently. With modern cloud software fantastically useful reports are laughably easy to produce.
Research (and accountants’ experience) has shown that the danger zone is around 30-45 days’ overdue (that’s overdue; not from the invoice date). Once that plus 30-day point is reached, the chances of final collection reduce dramatically.
2. Invoice quickly
The best time to send out an invoice to a customer is ASAP. You shouldn’t feel awkward or greedy sending your invoices along as soon as you’ve finished a project or as soon as agreed upon by you and the customer.
3. Be proactive with invoicing
Accept that some customers will try every possible trick to avoid paying you on time. Stupid invoice queries are a popular favourite. Pre-empt that by making sure your invoices are crystal clear (no odd phrases like “30 days net”); they are complete and include all part numbers, PO refernces etc; they add up; the VAT is correct.
Customers insisting you follow their specific invoice requirements is another one. No point arguing – learn each client’s invoice payment procedure and follow it carefully.
4. Make it easy to pay
The easier it is for customers to pay you, the quicker they will do it. Make it as easy as possible for your customers to pay you by accepting multiple forms of payment. Even by cheque, if they insist.
5. Move quickly
It’s pretty obvious that the longer a debt is unpaid the less likely it is to be paid.
A few days before payment is due, contact your customer (by phone for the bigger invoices) to make sure they have everything needed to make payment. A bit of personal interaction works wonders.
If debts aren’t paid – get in early. Call or email the first day a payment is overdue. Nice and friendly often does the trick, but get tougher as time goes on. If it comes to it, a legal threat usually does the trick, and it can be as cheap as chips if you use an online debt collection solicitor such as Thomas Higgins Ltd. A fantastic service – see here.
6. Offer an early payment discount
Yes, there is a cost to your business in offering such a discount, but the cash flow boost it provides could make it worthwhile.
7. Offer a payment plan to existing naughty ones
Overdue customers are probably having cash flow challenges of their own. You could offer the customer a payment plan for the amount that’s past due. If so, be sure to put the plan and its terms in writing and have both parties sign it. And make all future sales COD until the overdue amount is paid in full.
So there you have it – a few tips to help you get to grips with debt collection and so cash flow. I hope it’s useful.
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‘The Five Biggest Problems Stopping Franchisees Making More Money – And What To Do About Them’
Chris Martin is a chartered accountant and business advisor and has been helping franchisees create and grow wonderful businesses for over 20 years. He is a published author and has written extensively on franchisee tax issues. He passionately believes that whilst franchising is a deservedly successful business format, franchisees are often let down by their franchisors’ failure to offer support and guidance regarding the financial side of running the business. This leaves franchisees frustrated, overwhelmed and unable to grow their businesses to the extent they should. Chris has developed simple systems, support and guidance to ensure franchisees create businesses that provide them and their families the lives they so richly deserve.