It is great kicking off a new year, it can mean a fresh start and the holiday break helps reenergise and motivate you for another big year. I know that I felt pretty good getting back to work with a renewed attitude after a tiring year in 2012.
The trouble with going back to work in the new year however, is that not everyone starts at the same time. The office was a little quiet when I started back, which was good because it meant I could focus on what I needed to do. The problem for many people running a business however is that their customers often take a while to come back too.
If you have ever tried to follow up on outstanding accounts at this time of year, you will know exactly what I mean. It isn’t an easy task trying to get hold of the person responsible for the accounts (sometimes I think people take advantage of this a little), which means that the income you are waiting on takes longer to arrive than you expected.
How to keep your cashflow moving
No business wants to wait for money to arrive. Income is what pays bills and salaries, buys more stock and helps grow the business, but this is all very difficult to do if it isn’t reliable.
Small businesses need to be very proactive in this area and regularly contact customers to ensure they are aware of an outstanding invoice and the agreed payment terms. Offering incentives for early payment is one way to encourage your customers to pay up quickly and these can really take any form. A few good ways that I have been able to do this in the past has been to:
- Offer a discount for early payment
- Offer free shipping/postage for upfront payment
- Offer loyalty bonuses for return customers
All of these options offer an incentive to your customer and make them feel valued. If they feel like you are looking after them, and they have a good relationship with you, then it makes it a lot harder to ignore you.
Larger businesses may find it harder to develop personal relationships because they often deal with similar sized businesses as themselves. If incentives aren’t working and cash flow becomes an issue, then invoice discounting could also be a solution. This involves using an invoice as collateral and securing a loan from a financial institution for 80-90% of the total amount. The administration of invoices remains with the business, but once paid, the outstanding amount pays off the loan and any interest charged during that time.
Invoice discounting can help keep much needed funds flowing through the business, but can also create a situation where it becomes relied upon. The only way to combat the charges incurred for the use of the service and maintain your margin is to increase the cost to your customer, which is not always ideal.
The key to this solution is to ensure that the charges you incur do not exceed the discount that you would normally offer customers for upfront payments. Certainly not for everyone, but it does offer a reliable way to ensure you are paid on time.
How do you combat slow payments?
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