Cash flow management is essential for the success of any business. When your customers pay you, you are able to pay your suppliers, but if your customers don’t pay, you can’t pay your suppliers. This is why managing cash flow from customers is so important.
Here are 10 tips to help you manage cash flow from your customers:
- Incentivise your customers to pay early by offering a small discount, such as 2.5%, for payments made within 7 days.
- Request a deposit before work begins, especially for service-based businesses. The deposit amount can be between 20% and 50%, depending on your industry.
- Be sure to invoice your customers promptly, as the faster you invoice, the faster you will get paid. Automating the invoicing process can also help speed up payments.
- Make it easy for customers to pay you by offering a range of payment options, such as electronic funds transfers, online debit card payments, debit card machines, and mobile payment apps like Snapscan and Zapper.
- If you offer credit, always conduct a credit check on new customers to ensure they are creditworthy.
- Use a cash-on-delivery system to ensure payment is made as soon as the service is delivered.
- If customers miss their payment terms, turn them over to a collection agency.
- Clearly communicate payment terms to customers, both in person and on the invoice and in your contract.
- Monitor your accounts and track how long it takes for debtors to pay you, especially if you have many customers paying on credit. Identify debtors who have not paid within their payment terms and consider turning them over to a collection agency.
- Track financial ratios, such as the average collection period of debtors, to identify customers who are “trouble” and take proactive steps to manage them.
Remember, prevention is better than cure when it comes to financial management. Having sound policies in place to properly vet and check clients will save you time and effort chasing down unpaid invoices.
Tools to help manage cash flow better
Here are some tools to complement the Tips in the post above:
Use your accounting packages to trace debtors with long outstanding payments. Links to articles that show you how:
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