One area where most small business owners can improve their cash flow is in billings and collections. Keeping healthy cashflow is absolutely necessary to maintain a financially secure business. Here are some of our best practices we implement to ensure the health of our own business:
Get it right: One legitimate reason for non-payment is a confusing or inaccurate invoice. If you are selling a product, make sure your invoices spell out in plain English what was purchased, the price, when payment is due, the customer’s purchase order number, when it was shipped and to where it was shipped/any tracking number. If you are providing a service, make sure there is a description of what exact service you are offering and when payment is due.
Tighten Your Sales Process: Don’t start work without a formal purchase number from your business customers—many companies won’t pay with just a verbal purchase number. When you receive a purchase number, make sure that it matches your quote. Companies often put their payment terms on their paperwork, so if your customer tries to play this game, resolve any discrepancies before you start work. Finally, make certain every shipment and invoice is 100% correct. Set up processes to ensure the customer gets exactly what was ordered and that invoices are equally accurate
Get it out: Sending out paper invoices is a thing of the past. The overall payment process takes longer, and its often a waste of time. Our company uses bill.com to send out invoices, and have implemented this same practice with many of our clients who send and receive invoices. The faster you send out an invoice, the faster you receive the money. Doing so electronically is the best way to do so, as well as a very simple way for clients to make the payment online right then and there.
Get it sooner: Consider offering a discount for early payment—for example, 2% off for payment within 10 days. Not all of your customers will take advantage of this, but it’s a great way to pull cash in.
Be friendly: The best way to get paid on time is to build a positive working relationship with your customer before the money is due. Have your salesperson call his or her customer contacts shortly after the invoice goes out. Confirm that the customer is happy with the service or product they received. This communicates (in a nice way) that it’s time to start the payment process. If these calls uncover problems, it’s an opportunity to address them on the spot as opposed to when payment is past due.
Lastly: What about the actual collections process? Good companies contact their customers if a payment is more than five working days late. You should do the same. What’s different is that you’ve laid the foundation for a successful endgame. Any excuses for non-payment have been addressed. Your people know whom to call, and you have working contacts who will give you straight answers. Above all, you’ve strengthened the relationship with your customer and have built a basis for future business.
