Cash flow is always important in business. I worked for a company in their Accounts Department previously. They were, and are a great firm. The CEO was always appreciative of the work I did there. One thing that sticks in my mind is he would always say “you are the most important person in this company”. This wasn’t meant as an ego boost. It was a reminder that without me doing my job the business suffered. I was the one that chased the employees for timesheets, invoiced clients, chased bad debts and made sure the payroll was done on time.
But why am I telling you this?
To emphasise the importance of cash flow! Now I know what you are thinking – what an obvious statement to make and you are absolutely right. But really this blog is to serve as a reminder that it isn’t always plain sailing.
It isn’t just about cash flow it’s also about policies
We have all heard horror stories about bills being unpaid, sometimes never paid and others outstanding for months on end. To avoid this happening first and foremost you should have everything in writing (see our blog on contracts, terms and conditions….) but you also need to put a process in place. As a second step, we highly recommend you take payment on account. If you offer a service this is an ideal way to give you some protection and aid cash flow.
But won’t a payment on account put clients off
Potentially yes. But do you really want to work with those clients? Chances are those are the type of clients who don’t have the funds in the first place.
Taking a payment on account reinforces that your client sees value in your services. It also means you are less likely to be out of pocket and again helps with cash flow.
Invoices
Consider how you to want to send the final invoice. Will you require payment before releasing the final document/product/service? This is a great way to ensure you are not left out of pocket.
If you decide to invoice another way make sure you stipulate your conditions clearly on each invoice. This is important to do even if they have already been stipulated in your terms and conditions. Some examples of these conditions could include:
– Payment due date
– Method of payment
– What happens if payment isn’t received by this date? Will you be charging interest?
Chase promptly
If you haven’t received payment by the due date send a friendly reminder. This is an important first step. It shows that you are on top of the situation but it also serves as a reminder. Remember not everyone is as organised as you and it could simply just have slipped their mind.
If the friendly reminder doesn’t work, and you have waited a suitable amount of time, then it’s time to put things on a more formal footing. Write to them again stipulating that despite your previous reminder payment has not been forthcoming. Reinforce that if payment is not forthcoming within 7 days you will have no choice but to add interest.
Don’t be afraid to pick up the phone
Now, this is a step that a lot of people miss but it really can help with cash flow. A lot of people actively steer away from picking up the phone. This might be because they want the conversation in writing, or simply because they don’t feel comfortable doing so. But we can honestly say in the majority of situations it does help. Even if you are unable to get through to them and simply leave a message it reinforces it’s on your agenda. It puts your invoice to the top of the agenda and can sometimes mean you get paid ahead of others.
My reminders didn’t work and nor did the phone call
Sadly its almost inevitable that this happens on the odd occasion. In these circumstances, you will need to draft a very formal letter. You should include a copy of your invoice, outline the payment terms and make mention of your previous attempts to get the invoice settled. Ensure that you set out very clearly that if payment isn’t forthcoming you will issue legal proceedings. It’s important to give the client time to process this and we typically suggest 7-14 days depending on the value.
Court proceedings or debt collectors?
We strongly recommend against debt collectors. Court proceedings, after following the process above, gives you added protection. Where successful there are multiple ways to enforce a Court Order depending on each situation.
When it comes to debt collectors they can cost you a lot of money and there are hidden costs. They will often make a lot of promises and quite often take a percentage of the debt. Even where they say costs will be recovered from the client this isn’t always the case. Technically if the debt is below a certain amount they will only be able to charge late payment in accordance with your terms and conditions. If the client doesn’t pay the debt collector’s fees they will in all likelihood only return a percentage of what is due to you.
At K&K Business Consulting we have both studied law
We understand the steps that need to be taken and can advise you on what works for you. Our number one rule in legal proceedings is to consider the value. There is no point putting good money to bad and we can help you consider this.
Offering a weekly, monthly or annual service?
If you are offering a repeatable service make sure your terms and conditions are in tiptop shape. This should include the notice period required to terminate the service and the costs of such. If you need any assistance in getting your terms and conditions right please do not hesitate to contact us.
It all sounds like a lot of work
You are in luck it’s a service we offer. We can be that added member of your team to help you manage this. To invoice your clients, to send reminders, pick up the phone, negotiate payment terms and draft Court proceedings. So if you need any assistance you know where we are.