Running your own business can be extremely rewarding but there will be times when you are stressing about whether your bills are paid on time. Depending on the business, many factors will determine the success or failure of a small enterprise however the most common is cash flow. We take a look at three very simple solutions to cash flow problems to help make your business ownership more rewarding.
Without the regular inward flow of cold, hard cash any business will die a natural death. Many small business owners know too well that operating in an uncertain economic environment means customers take more time to pay. When most small businesses set their terms at seven or fourteen days payment, if these terms are consistently ignored by customers – who may also be struggling to get their own customers to pay – it is not only dangerous to the health of the business, but the associated stress can be bad for the health of the owner.
If you’re finding it hard to get your customers to pay you on time, there are some simple solutions:
- Pay upfront. Of course, the easiest way is to get full payment upfront, but this can be difficult for many service providers, particularly with new customers. Instead, ask for a part-payment, which could be 50%-70%, prior to the full service being delivered. This not only establishes a mutual commitment by both parties but also creates a more regular flow of cash into your business.
- Use an automatic payment service. This can be done for one-off or ongoing payments and assures you that you will be paid because the payment has already been scheduled from your customer’s bank account. There are many reliable services available in Australia and the cost is surprisingly low. Type “direct debit payment services Australia” into your search engine, do some research and find the one that suits you best. Once set up, you’ll wonder why you didn’t do it earlier.
- Provide an incentive. Encourage your customers to pay before the due date by offering a small discount. Utility companies and councils have done this for decades and although it could reduce your profit a little, you’ll save by not having to chase late payers. The opposite of discounting is adding interest to overdue payments. Be careful with this practice because it can create more animosity when the original invoiced amount blows out of context. And it does nothing for ongoing customer relationships.
On the flipside, if your customers are dragging the chain, you could be having difficulty paying your own bills. Knowing what it feels like, take the upper hand and explain the position to your creditors. Most will be happy to work out a payment schedule so everyone wins.
Read about our other tips to help your cash flow here.