They say that cash is the universal language, and everybody understands its meaning. Certainly, it's difficult to do business in Australia without it, and you need to keep a close eye on your bank balance at all times to make sure that you don't get into trouble. If you're a small business owner, you may think that this is fairly obvious, but you may inadvertently be creating problems for yourself by making it difficult for your customers to actually pay you. How can you get out of your own way and avoid encountering a serious cash flow crunch?
Getting to the Point
Some people like to treat their customers in a very friendly and casual manner. This is fine, and it's always a good idea to maintain friendly relationships with your client, but when it comes to invoicing, there can be no slack. You must make sure that you issue them at exactly the right moment and always chase them up.
What Are You Talking About?
What type of invoicing policy do you maintain? More importantly, do you actually stipulate this on your invoices or new contracts? You might anticipate that your invoices will be paid in 30 days, as this is normal, but what if that potentially lucrative customer has to deal with a longer payment cycle at their end? They may come under pressure to pay you as you would like, and you need to ask these questions well in advance.
Offering an Incentive
If you're happy with communication and there are no surprises like this in store for you, perhaps you need to be proactive to really move things along. Why not price your product or service so that you can offer a cash discount and still be ahead of the game? Extend this discount in return for a prompt payment—perhaps 14 days instead of 30—and see how this works.
Get It Down in Writing
You do need to make sure that all of your fine detail is in your contract, written quotes and other paperwork. It's all very well to do this on the basis of a handshake, but this can lead to disagreement or even confusion down the road. Make sure that you communicate with your customers via email as well so you can send a quick reminder out with full details as necessary.
Capitalising on Your Uncertainty
Remember, uncertainty can lead to delays, and some customers may use this situation to help with their own cash flow. You need to get to the point and never be ambiguous when it comes to financial matters.
Don't Forget the PO Number
As you grow, you will find that you bring on bigger and more established companies, and this will take the payment cycle to another level. These organisations may not be able to act without a purchase order, which is another layer of bureaucracy. If this is the case, always ensure that you include the PO number on your correspondence, or they cannot process it through their system.
An Expert Pair of Eyes
As you can see, there are a lot of potential loopholes and issues to face if you are to maintain a healthy bank balance and cash flow. Bring in a bookkeeper, who can handle a lot of these headaches for you.