As we approach the end of what’s been an incredibly tough year, many small business owners will be looking forward to a reopened economy, busy trading period, and a fresh start in 2021, writes David Rennex, CEO and co-founder of AI-powered debt recovery platform, DebtForce.
With the prospect of a COVID-normal new year not far from reach, the last thing business owners want to be thinking about is chasing payments. Yet, as a recent study by Illion reveals, late payments have seen the sharpest increase in over a decade with the average business waiting 26.5 days to be paid.
However, it’s not all doom and gloom.
The end of the year is the perfect opportunity to refresh what ‘business as usual’ means to you. That includes finding solutions to the most common painpoints within your company and customer base.
To get your house in order, start proactively implementing change now to avoid the cash flow killers that are synonymous with the silly season. Here are three tips to ensure your business gets paid on time this December:
One of the biggest causes of late payments and subsequent bad debts is disputes over vague and unclear customer agreements. Making sure you and your customers are on the same page is paramount, especially during the busy end of year period.
When drawing up contracts, over-explain the details to ensure there is no room for interpretation when it comes to what service or product you will deliver, and when you expect to be paid. Set crystal clear payment terms, including the steps you will take when an invoice falls overdue.
There is no universal handbook for small businesses to use when navigating late payments, meaning you must set your own terms that best serve your business. Having a plan of attack in place empowers you to act on late payments fast and effectively, and increases your chances of recovering a late payment successfully.
If you are unsure where to start, consider consulting a legal expert or experienced advisor for help. Use their expertise to build a template for a watertight contract that can be adjusted according to each customer agreement.
Make your preferred payments non-negotiable
Before you engage with a new customer, or when renewing existing customer agreements, explain how you expect your customers to pay.
The standard payment terms for most small businesses is between 15 to 30 days. However, in this economic environment, it is not unreasonable to stipulate tighter invoicing periods to ensure your business stays afloat.
There are a few options to consider, including:
Full payment upfront: this is most common in companies that provide products or physically deliverable goods.
Partial payment upfront: asking your customer to pay a deposit for your services or goods shows both a commitment on your behalf and theirs.
Staggered repayments: for larger sums, breaking down an invoice into digestible amounts can encourage your customers to stick to a payment plan. Just be sure that you have enough working capital on hand to cover the time between each instalment.
Automate payments: Direct Debit or BPAY payments are a simple solution to collect payments on an agreed-upon date automatically. Some technologies integrate with invoicing systems, meaning the whole payment collection process is streamlined and simple to use.
Maximising cash flow predictability is the ultimate goal when making your preferred payment method compulsory. Taking a firm and upfront approach to how and when you expect to be paid proves to your customers that you mean business.
Prove yourself, and research your customers
In this day and age, a company’s online presence can be the make or break when it comes to winning business; in fact, according to research by Salesforce and Publicis.Sapient, 87 per cent of consumers start their search online.
Creating an online presence that accurately reflects your professional service standards does not have to be complicated. Start by asking your most loyal customers to write a testimonial outlining their positive experiences with your business. This shows potential customers that your company will deliver on its promise, and make them more willing to agree to your payment terms.
Just as your customers will likely look into your business, spend time doing your due diligence on who you expect to trade with by researching your prospects thoroughly online. You can also request a potential debtor to fill out a credit application form or trade reference that details the financial health of their business. A quick online search will provide you with a basic template to use.
In this environment, it’s best to take a ‘buyer beware’ approach to keep any unnecessary stress at bay as we approach what’s often the busiest time of year for small business owners.
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