It is not unusual to have to chase customers for payment. However, even if you have made a lot of sales and your profits look good on paper, late payments can affect your business’ cash flow. An unhealthy cash flow can affect your ability to pay your employees’ salaries, buy equipment or raw materials, and grow your business as a whole. Being able to collect payment on time will contribute to the smoother running of your business. Here are some easy and effective tips to help you regain control of your business’ cash flow.
Screen your clients
Before making a sale or entering into a business arrangement, run a credit check on your prospective client. Many companies, especially financial institutions, obtain a credit report before engaging in a business relationship with someone. You may also do a quick Google search, or ask your contacts if there have been any complaints about your new prospect. Doing some research in advance could save your time, money and trouble down the road. A bad credit history may indicate that the client may not be able to pay in a timely fashion, or may even default on payment completely.
Clear payment terms
Review your payment terms and give some thought to your terms and conditions if you want to be paid on time. Payment terms will affect your cash flow. If your payment terms are poorly drafted, your customer may have a hard time understanding how to pay you. Be clear on your payment terms to provide clarity to customers on your payment policy. For instance, state if payment is due in 30 or 45 days. Before setting your payment terms, it is also a good idea to check against your industry’s invoicing standards. You can also decide on consequences for late payment – such as late payment fees – and state them in your payment policy accordingly.
Depending on the scale of the project, consider drafting a written contract to include a payment schedule, especially if the client is new. Many small businesses require a percentage of payment upfront before work begins – especially for larger projects. Some businesses expect payment with the completion of each stage. For instance, you could collect payment upfront, or stagger payments by asking for a 40% deposit, 40% upon reaching a milestone, and 20% upon completion. This way, if your client does not pay on time, you can stop working until you are paid.If your customer has genuine financial difficulties, consider extending a monthly instalment plan to him. However, take note that the customer may go bankrupt, and your business may end up getting nothing.
Offer a discount
To encourage your customer to make payment ahead of the due date, consider offering an early payment discount. An early payment discount is also known as a cash or sales discount. For instance, you may offer a 1% or 2% discount if payment is made within 10 days of the date of invoice.However, there are some drawbacks to offering such discounts. Firstly, your profit margin will shrink by 1% or 2%. You will also need to track payments very carefully. Some clients may even apply the discount though payment was not made early. Hence, offer discounts with discretion.
Another approach is to introduce alternative payment modes. The easier it is for your customer to pay, the quicker you will receive your money. Instead of waiting for the cheque to be signed and mailed to you, accept credit cards, or set up online payment options such as PayPal or Stripe to make payment easy. However, these platforms do charge a transaction fee – it is 3.9% + S$0.50 per charge for PayPal and 3.4% and S$0.50 per transaction for Stripe.PayNow Corporate also offers a more affordable mode of collecting cashless payments. A lower transaction fee of about 2.3% to 3.5% applies for businesses accepting Visa and Mastercard payments, while the transaction fee is 0.8% to 1% for NETS payments.
Digitise the invoicing process
Going paperless can help you increase your productivity. Instead of generating invoices manually, you can be more efficient by digitising the invoicing process. There are applications that can help you create, send and log electronic quotations within a single system. Besides document sharing and the reconciliation of invoices and orders, such invoicing software can ease your workload by digitising the endorsement process for your quotations. A quotation can also be converted into an invoice with just one click.
Chasing for payment is part and parcel of doing business. To strike the right balance between being pleasant but firm, maintain good relations with your customer. By being polite, customers will respond more positively and you will have a higher chance of getting your money as soon as possible. For instance, get in touch with your customer to check if they are happy with your services before you send an invoice. That way, they cannot claim to be withholding payment because they were not satisfied.Set up a system or leverage invoicing software to track outstanding invoices. Note payment deadlines in your calendar, and generate automatic email reminders for overdue payments. As soon as a payment date is missed, take action immediately.
At Corporate Services Singapore, our accounting professionals can guide you and provide specialist advice on how your company can stay on track with its cash flow.
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