Managing your cash flow can make or break your business because cash is king. Why is that?
The basic flow of Cash in your business is:
Your customers pay you, then using that cash you pay your suppliers.
If your customers don’t pay you, you cannot pay your suppliers.
The first step of good Cash Flow management is therefore ensuring your customers pay you so that you can pay your suppliers. This article covers 10 Tips To Manage Cash Flow From Customers:
- Customers can be incentivised to pay early. For e.g. if they pay within 7 days they get a small discount of 2.5%
- For service based businesses, request an upfront deposit before work commences. The deposit can be as low 20% or up to 50% depending on your industry.
- You need to Invoice your customer on time. The quicker you invoice, the quicker you will get paid. Automating the process will ensure invoices get sent to the customer.
- Make it as easy as possible for customers to pay you. Besides EFT’s, there are so many options: Online debit card payments, debit card machines, Snapscan, Zapper
- If you sell on credit, always do a credit check on new customers.
- Use a cash on delivery system. Payment needs to be made as soon as the service is delivered.
- If they miss their payment terms, turn them over to a collection agency
- When communicating payment terms to the customer, make sure terms of payment are communicated clearly: in person, on the invoice and in your contract
- Good Financial management means having a view of what is going on in the accounts at all times. This includes keeping track at how long your debtors are taking to pay you. To do this, you need to track how old the debts are. This is especially important if you have lots of debtors paying on credit. For e.g. if your payment days are 30 days, how many debtors are within the 30 days and how many have not paid within the 30 days (60, 90, 120 days). This allows you to identify which debtors to consider turning over to the collection agency.
- Something also worth tracking is how long on average are debtors taking to pay using the financial ratios: average collection period of debtors.
With all things financial, prevention is better than cure.
It’s better to have sound policies that properly vets and checks the client then chasing a customer for your money. You have better things to do!
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: