Cash flow issues hurt, don’t they?

Hi again,

This is a subject that has been very much on my mind of late, so you may find the pointers below of interest.

When you run a small business, and I mean small – how about one employee… me – cash flow issues can really hurt. I really enjoy proofreading and copy editing and get a lot of satisfaction out of doing a good job for someone, but I hate chasing for payment.

I ask for 14 days payment and I have so many lovely clients (mostly running small companies themselves and who know the score), who pay up within a few days; this is marvellous 🙂

Trouble is, you do become used to your invoice being whisked quickly out of the due section to the paid section, and it is more of a shock when they are – shock horror – paid late.

I think this is probably more the case with larger companies, who have specific days when they pay their invoices. I have one client who is paid by her own client after six weeks. I nearly fell over when she told me that was how long I was going to have to wait to have my invoice paid.

What can you do to help manage your cash flow? This article by The Guardian Small Business Network has some useful tips to help you and I am outlining some of them here:

Agreeing clear payment terms from the outset is important

Suzannah Nichol, Chief Executive of the National Specialist Construction Council, explains.

“If you don’t start off knowing what your payment terms are, it is difficult to know when you are going to get paid,” she says. “If you don’t know when a payment is overdue, how are you going to manage your cash flow?”

 Invoice as soon as the work is completed

Marion Thomson, of Embarc Ltd Accountants, advises SMEs to invoice clients as soon as the work is completed.

“If you wait two weeks after the work has been complete, then it should be fairly obvious that it will take a further two weeks before that cash arrives in your bank account,” she says. “Issuing your invoice by email will mean it will get there immediately and you will have a record of it being sent.”

Make payments easy for customers

Making payments should be made as easy as possible for your customer, Thomson advises. “Try to avoid being paid by cheque as it will result in delays before the money arrives in your bank account,” she says. “Online payments are a much better option.”

Offer clients fixed rate payment packages to ensure good cash flow

Yva Yorston of Boost Business Support has adopted this for her clients.

“… I have developed retainer packages for a fixed number of hours each month, which are billed in advance,” she says. “This way, I get paid up front rather than in arrears, and I can plan my spending and business growth more easily. The peace of mind this gives me is priceless.”

Establishing payment arrangements that minimise debtor days

Powwownow’s, Andrew Johnson, suggests the following to minimise the gap between invoicing and payment:

“One excellent way to ensure these remain stable is to establish direct debit as a business norm for collecting receipts. It allows a business to scale without increasing the costs required to collect the debt, while also providing a stable inflow of cash from which all payments can be made from.”

Use technology to manage cash flow

Andy Harrold, of Aberdeen Gardening Services, said cloud-based accounting is the biggest time-saver for his business:

“Not only has it given me flexibility on where I can view my accounts, but it has also removed the worrying hassle of backing up all that data. I can now view my accounts on the move via my laptop, tablet or mobile phone and keep up to date with my financial situation.”

Keep the bank informed

Banks can offer businesses useful services like overdrafts or credit, particularly when they are starting out. Andrew Selmes of Hire or Buy Art, says that keeping the bank informed over any unforeseen outgoings and changes in forecasts, has been crucial.

I must admit, I only follow some of these at present, but it is food for thought isn’t it?

Until next time…


9 thoughts on “Cash flow issues hurt, don’t they?

  1. I’ve had similar experiences. Smaller businesses clearly understand the importance of prompt payment, and I always try to pay others quickly too. But the larger companies we work for often leave it for months in spite of our terms being 21 days.
    Interesting article, thanks for sharing.

  2. This is really relevant for us at the moment. The small businesses we deal with generally pay promptly but the larger companies can take months! We have automatic reminders and statements that get sent, and we’ve changed our terms to 21 days (from 28). The next step is to enforce the terms on the invoices about adding interest on late payments. I’m reluctant to do this because of client relationships.

  3. It is a tricky one Jo. I am having problems with one particular local authority client (probably the worst for stringent and unflexible payment terms). What do you do – you can either decide to do the work and accept their payment terms, or you refuse the work. Thanks for your comments.

  4. A Lesson I learned from my Father seems relevant here. He told me, in the context of paying for services, that the small business was not my bank! If I contract a service from a small business I must be prepared to pay immediately the service is delivered, or else dont contract for the service. I was appaled wen runniing a business with some 320 employees that my business partner used to delay payments as a form of control, especially for sole traders and small companies. My Dad’s rule works for me,

    The other thing is “fire” customers who are bad payers. It makes space for more good paying customers.

  5. Thanks for this Adrian. I too am appalled at the time I have to wait to BE paid, by larger companies. I would sincerely hope that it is not because they want to exert control, rather that they have strict pay runs schdules to which they have to adhere.

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