An iron grip on financial matters is a key characteristic of most successful firms. Chasing money and getting it in the bank as fast as possible is a skill to be learnt like all others.
If you can, get paid in cash with the order, or cash on delivery. Try not to give credit. If you can manage this you save an awful lot of extra administration, stress and worry. When giving credit is the only option, only give to those who are likely to pay and make them stick to agreed terms. Easier said than done, but remember: giving credit is simply an interest free loan to someone else, often made on trust and often to someone you don’t know well – so give the minimum. Further reduce the risk by getting a deposit with the order. Anything between 20% and 50% is permissible, especially if you are offering something unique.
A lot can be done to encourage faster payments. Many companies simply put ‘payment within 30 days’ on an invoice and it is nowhere near good enough. No-one pays when they don’t have to, and by the time a month is up the invoice is be hidden under a mountain of paperwork. Then you have to chase it. What if a company has a policy of always taking 90 days credit? You need to know.
Good credit control begins when you negotiate the order. Introduce the subject and remember you don’t have to accept business on someone else’s terms. Usually though, payments are negotiable. You could ask for cash payment within seven days. By discussing the payment terms along with the order, the promise of payment is as much part of the deal as the price. If you do have to extend it to 30 days you might be able to negotiate something else instead. Don’t forget to record payment terms and other details on the order confirmation.
Either deliver the nvoice and goods together, or invoice immediately by first class post. Remember, instant invoicing works much better than chasing up after time has gone by.
Use business stationery with your company name, incorporation number, VAT registration etc. and include the charge and a breakdown of costs. Put on the date of issue, which is also the tax point for VAT registered traders, and any other necessary information, such as an order or a stock number. Payment terms need to be shown prominently.
If a customer insists on a statement, provide as necessary. These are summaries of the transactions with the customer over a certain time, e.g. 3-6 months. These are sent monthly and include all invoices during the period the statement covers, payments received and the outstanding balance. Many won’t need statements, and it is more time and expense for you so don’t volunteer them!
Ironically, a high proportion of businesses that go broke are actually profitable, but have just run out of cash. Cash they are often owed by someone else. Taking these small steps can effectively improve credit control and keep the cash flowing. And if you can’t get the money, see our article on collecting payment and minimising credit risks.