Cashflow is the amount of money coming in to a business and the amount of money going out.
Cash inflow comes from sources such as payments from customers, receipt of a loan, money from investors and interest on savings or investments. It will enable the business to meet its tax liabilities on time and will reduce costs, for example interest charges.
Cashflow is important because it later becomes payment for things that make your business run: expenses like stock or raw materials, employees, rent and other operating expenses on time.
Strong cash flow also makes your business more appealing to a lender if you wanted to take on new debt at some point. You also have the ability to offer favourable credit terms to attract new buyers if you are less desperate for cash.
It is important for all businesses, large and small to manage their cashflow effectively. To ensure good cashflow, it is important that customers pay on time.
We spoke to Global Executive Coach, Neelam Kaul to discuss tips to encourage your customers to pay their bills more quickly – here’s 10 tips:
1. Have a System
By having a good system in place to manage things, you can save yourself time, effort and hassle. It is important that your system includes a clear timeline of when invoices will be created and sent, when you expect payment to come in, when you’ll send payment reminders, and when you’ll follow up.
2. Use The Right Tools
One of the best ways to save time is to use an accounting software. You can set up reminders and alerts to customers once an invoice is overdue. You can also send them a text. Often customers simply forget about paying, a reminder that they are overdue should be enough to quickly get them to pay. It is important to set good habits from the outset. Customers should have the expectation that they’ll hear from you immediately if they are late.
3. Send Invoices Out Promptly
The sooner you do it, the better. The quicker the customer gets the invoice, the sooner they are likely to pay. Your aim should be to invoice the customer immediately.
4. Email Invoices
Emailing invoices gives you the advantage that the customer gets the invoice immediately, rather than the time delay and cost of postage.
5. Have clear payment terms
Make sure your payment terms are very clear in writing and accessible to your entire team. The invoice should clearly state the date it was sent out and the date payment will be due by, so customers know what is expected of them. They should be getting a consistent message. When you get a new customer, you should be upfront of the payment terms.
6. Reward Early Payment
Provide a discount for customers that pay early. That will encourage them to pay sooner.
7. Charge interest for late payments
This is especially important if customers are regularly paying late. Make sure this is communicated clearly to customers on your invoice and verbally.
Asking for a deposit if appropriate will help you with some money to aid with cash flow.
8. Be flexible with payment type
You should offer flexible payment choices with a range of options. For example, customers could opt to pay online, phone or by card.
9. Get customers to pay by standing order or direct debit
This is great if your business takes regular payments from customers. They only have to set it up once and then you will receive payment every month automatically.
10. Build a good rapport with customers
Finally, running a successful business means having good relationships with customers. This will make it a lot easier to have the difficult conversations if they haven’t paid on time. It will also encourage openness, honesty and mean customers will not ignore or avoid you. However, it is important that you negotiate effectively and establish clear boundaries so no one takes advantage of you.
On the same note, build a real relationship with your vendors. If they trust you and you’re honest with them it could go a long way to making your life easier if you need to ask for an extension or flexibility.
From starting a career as a Corporate Tax Consultant in London and then going on to work at Deloitte, PwC and UBS, Neelam specialises in career coaching, and working with leaders who are looking to excel personally and professionally. If you’d like to get in contact with Neelam you can connect via LinkedIn here, or visit her website here.