Cash is king – here’s how to keep it on the throne
Cash is the blood of a business – without it you die. Cashflow is the movement of that life-giving blood into and out of the business; if there’s more flowing out than in then you’re in big trouble. Many firms go under despite being profitable simply because they did not stay in control of their cashflow. One of the key ways to take control of cashflow is to take control of your trading terms. Here are a couple of things to think about that might help you stay in control.
Ask for money up front
If you’re doing a big job that is going to take some time to complete, or one where you will have to buy lots of supplies then ask for a percentage of the money upfront to cover your expenses. Not only does this save you from buying the stuff yourself but it also gives you an indication of the client’s willingness to pay.
Payment on delivery
Don’t think that you have to give everyone 30 or 60 day terms; ask for the money on delivery, especially with a new client.
Don’t stick to the normal terms
Make your payment terms 7, 14 or 21 days – never 30. If you say payment in 30 days then you probably won’t get the money until the end of the month after you did the job or made the sale. Why? Because people usually take 30 days to mean ‘at the end of the month’ and at the end of the first month will be less than 30 days so they will leave it to the end of the next one…
Get on the phone
Chase people up, don’t let them get away with it, be relentless (without being abusive). If people are short of money to pay their bills they will usually pay the people making the most noise – that needs to be you. And if you do that every month then they will always pay on time just to get you off their back!
Discount for early payment
Explain to people that you will give a 3% or 5% discount if the money is in your bank before the end of the payment notice period. To help pay for this generosity on your behalf make sure that you also add a 5% surcharge for bills that are late.
Stay on top of the paperwork
If people see that you’re slow with invoicing or sending out statements then they will take this as a sign that you’re not worried about when they pay. Plus, if your invoices go out nice and early then they have no excuse for it all being a surprise to them. This is really just part of running a business properly so there should be no excuse for not doing this bit.
Get people to pay via credit card
If a client pays you by credit card then you get the money straight away and they don’t get billed by the credit card company for anything between 30 and 60 days. This can be a ‘win-win’ for you and the customer so suggest it to them.