To avoid going to the banks for invoice discounting, factoring, overdraft or any form of debt, here are a few simple internal strategies for your business:
Bill early: Send a bill as soon as you have rendered a service or sold your goods. If you have longer term contracts arrange for stage billing or, even better, upfront payments. If possible arrange for annual or quarterly billing in advance (standard procedure in businesses such as software support, or property / goods rental)
Bill when work is done: Companies do not have to wait until the end of the month to charge for services rendered much earlier. If a job is done over a long period, break the job into stages and bill after each stage is completed.
Follow up quickly: If a bill is not paid within 30 days, what do you do? Hope your customer will realise that he owes you money? Chances are that your customer is well aware of all his creditors. Hence you need to develop an aggressive credit control process. Make a phone call within 1 week of raising the invoice to check they have received it. Call within two weeks of an unpaid bill to ask when it will be paid and remind customers of your payment terms and conditions. Write a letter within 30 days if still unpaid. Escalate the seriousness of letters through to legal action if required after 30 days and before 60 days overdue including putting goods and services on stop. In this case always keep notes of conversation held and promises made and try to avoid going to court if possible. Also bear in mind you can claim statutory interest at 8% over base plus costs for overdue amounts.
Make it easy for customers to pay: Ensure there are no invoicing errors on your invoices and that payment instructions including your bank account are clearly marked on the face of the invoice. If an invoice is disputed suggest get agreement to payment on account of the undisputed part and then quickly work to resolve the balance.
Avoid ‘no pay’ or ‘slow’ customers: Be upfront with your customers about how long your credit policy and terms and understand their internal payment and authorisation procedures. Avoid doing business with poor or long paying customers and if need be, stop any ongoing projects and services. Clients delay payments as long as they can to manage their own cash flow but will usually pay up when you have a strict policy. You should only trade with customers with a good credit record.
Initiate a regular payment system: Encourage your clients to pay using a direct debit or standing order if you offer regular services. For those that are not regular encourage customers to pay electronically by online banking or BACS – this ensures you can use the funds more quickly, minimises the payment cycle and chance of a payment being ‘lost in the post’ and is cheaper in bank charges for you and your customer
Discounting: Offer incentives for prompt payment to both customers. Consider discount payments for customers who make upfront payments and charges for late-payers. Ensure you have assessed the cost and benefit of this approach and only give the discount if your customer keeps to their part of the bargain
Bartering: This is becoming an increasingly common way of doing business and many barter exchanges are appearing on the web. This is a way of swapping your services or products with a customer who has products or services you need without cash having to change hands. As long as you are getting the right value for your products, no cash or credit management is required and settlement of your invoices is immediate.
Now focus on getting this right the first time within your organisation and you can avoid fees and charges that will eat into your profits. Maintain a good financial management discipline by keeping accurate records, tracking key performance indicators and employing appropriately qualified and skilled financial staff. Outsource to specialists if you need to!
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