Last Updated on Feb 28, 2020 by James W
Cash flow is a common problem for business and your payment processes will be partially to blame. You need to create a system that is easy to follow and efficient so that you are paid when you need the money; preferably before you complete the work. Here are three questions you need to answer about your potential cash flow problems to improve processes to make it as efficient as possible.
How long does it take people to pay you?
Avoid having long payment dates on your invoices. When the economy was good, a 90-day period to pay an invoice may have been fine; a 30-day period was often normal. However, with the economy struggling so much, you need to be paid as soon as possible, which means limiting your invoices to around 10 days. If you can, arrange for payments to be made upfront or for them to be placed in escrow.
Escrow at least means that the money is there and you know it can’t be spent on anything else. Once the project is finished, the client releases the money to you. The only way it can be sent back to the client is if you agree to cancel the project.
What is your collection process like?
You can’t just send out an invoice and expect it to be paid. Unfortunately, there are clients and businesses that will fail to pay the agreed money on time. This could be because they simply forgot or because they have financial problems of their own. You need a collections process so you can remind people about their invoice and chase up any bad debt.
The best type of collection process is automated. This means that you can spend more time on other areas, such as your customer service and increase your client base. The only time you should need to get involved is when you have tried on two occasions to gain the payment; that’s when you need to start thinking about debt collection.
How do you handle disputes?
There are times that disputes arise, whether with payments or the work that has been completed. The quicker your resolve them, the sooner you get paid so it makes sense to look at how you handle them. Having a sloppy dispute section will mean that your hard work to gain your payments goes to waste.
Part of the dispute process requires that you identify them quickly. You want to be the one who sees it first so you can start the process to correcting the problem. Your clients will be happier and likely to have fewer problems withholding some of the payment due. You should also have good communication during the process of resolving the dispute to make your client happy.
You can have the best product in the world and make the greatest profit but if your payment process is poor, you will have poor cash flow. It is important to improve that as much as possible to get your payments when you need them and reduce the amount of corrections required when handling disputes.
Alex Ingham has written many business articles for www.realbusinessrescueco.uk. Over the past year, she has covered topics including HMRC, tax, the liabilities of directors as well as help dealing with insolvency. Real Business Rescue offers businesses impartial and professional advice in handling insolvency and finding the best option to get your business out of the red.