Cash-flow problems can be a killer for small business owners. But there are ways to negotiate better payment terms.
There’s nothing more frustrating than debtors taking their sweet time to fork over money that’s rightfully yours.
But if you run a business, you could be waiting 90 days or even longer for debtors to pay. Research by credit reporting and collection firm Dun and Bradstreet found that the majority of all invoice payments in Australia are late, with nearly half of all accounts settled between one and 30 days beyond standard payment terms.
It also found that the average invoice payment time rise to 55 days during the first quarter of 2013, up three days on the previous quarter.
Nicole Williams founded advisory firm BRS in 2009. She admits that gaining assistance from the bank was her biggest hurdle, forcing her to implement stringent payment terms.
Not putting all your eggs in one basket with one client is paramount, she says.
Have a debtor management procedure in place that details what needs to be done if you haven’t been paid is also paramount, she says.
“Most people don’t like following up debtors, but you’ve got to get past this and follow up.”
“There are times when you will have to chase payment, but just remember, the client is the one that should feel uncomfortable about this, not you. You’re just asking for payment for products or services you’ve delivered, which you are entitled to.”
Jo Ucukalo, founder and CEO of HandleMyComplaint.com.au says the most common complaint she hears from businesses relates to overdue invoices. She urges small business owners to get tough with repeat offenders.
Steps to avoid issues include making sure invoices include a clearly visible due date, and that you have a process that enforces this date.
“This requires you to check that you’ve received the payment by the due date and follow up, preferably by phone, on the following business day if the payment hasn’t arrived,” Ucukalo says.
“Make sure that a revised payment date is set in your follow-up communication, and confirm an extension agreement and payment date,” she says.
David McKellar of Allied Business Accountants says cash flow is king in business. An automated procedure around invoices, statements and overdue notices is imperative.
“No customer will be offended by a professional and systemised collection process. It instead shows that you run a tight ship and have good systems in place.
“Also, don’t be shy in engaging legal assistance or a debt collection service early. Many providers don’t charge for the first legal letter, and it sends a firm message to your debtors that they must pay you on time,” he says.
* Consider implementing 7 day payment terms* For lump sums, insist that all invoices are paid in advance
* Ensure you are clear on the project, rates and costs up front
* Don’t put all your eggs in one basket with one client
* Have a debtor management procedure in place
Source: Nicole Williams, founder, BRS