Most new businesses whether large or small, usually find their first few years of trading extremely tough; a constant battle to survive in various and increasingly competitive markets. There is nothing remotely easy about starting and running a business, and it's a sad fact of life that many don't make it beyond the first year.
One of the most common problems faced by new businesses is trying to get money into the company; money owed by clients that for one reason or another rarely settle their bills on time. The majority of start-ups have very little cash to play with, so a late payer can be a serious problem in more ways than one; a problem you as the business owner should be prepared for.
Payment Terms
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Before your company begins trading, one of the many important issues to address is deciding the amount of time you will give a client before their payment becomes due. As most start-ups need instant money to keep them viable, particularly in the very early days, cash on delivery would be the ideal option, but not really practical for business to business transactions where various credit terms and account facilities are usually offered and indeed expected. So, as a new business looking to convey a professional image and not one showing signs of desperation, and if your business can stand it, allowing a maximum of thirty days to pay is generally quite acceptable.
Credit Accounts
Opening a credit account for a customer is usually a sign of a possible long-term business relationship, but don't forget to vet them first. Take the trouble to obtain a couple of business references and one from their business bank as well. Checking them out will be time well spent because it's very easy to get carried away with the thought of having a 'regular' customer and what might hopefully be the start of a solid client base. Tread carefully; an account is only a good account if the customer pays their invoices. Do the checks first - better safe than bankrupt!
Outstanding Payments
Rather than risk reminding them they still have one or more overdue invoices outstanding, many businesses make the mistake of extending some clients unlimited credit and more time to pay because they think a refusal of further credit will result in no more business from them. This may well be the case, but what must be remembered is, no matter how much they spend, a client who owes you money, especially overdue money hasn't actually 'spent' anything until that money is safely in your business account.
You have a duty to your business to ensure money owed is paid on time or as near as possible to the due date. If your company has produced work or provided a client with a service within an agreed time frame and to the satisfaction of that client, then it's not unreasonable to want your payment on time. After all, if your company constantly delivered its products or services much later than required, customers would be the first to complain. Don't be afraid to enforce your own payment rules - it's your money!
Reminders
In general, most businesses rely on the efficiency of their customers' accounts departments to pay invoices on time. In reality, this doesn't always go according to plan. In the busy rush before a company starts its monthly cheque run, invoices can easily get overlooked, lost, or simply forgotten, often resulting in a further month's wait for payment. Try and prevent any possible delays by reminding the client you're there. A good idea is to telephone your various clients' accounts departments a week before payment is due and enquire if you will be receiving payment on time. If there are any problems discovered at this point, at least you will have plenty of time to resolve them.
Taking care of your company's income is not always easy. It's often an extremely time-consuming and thankless task made that much harder because of the multitude of different systems and processes used by various clients, and always having to chase up the habitual late payers. The point to remember is that when it comes to getting paid money your company is owed, it's down to you as the business owner to make sure it happens. An effective credit control system is an invaluable aid to maintaining a healthy cash flow situation as long as you follow your own procedures.
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