Outstanding payments can make or break your business, whether you’re a sole trader or a multi-million dollar international company.
Small business owners and sole traders can find themselves in a bind when it comes to chasing outstanding accounts. The business owner must pursue the money from the client, but also try to get repeat business – sometimes from the same individual. It can be challenging to walk that fine line between a happy customer and a positive bank balance.
Here are my top tips for collecting all your overdue accounts in 2016:
Make your credit terms clear
Have set credit terms and make them clear to your clients. Some of my clients are able to charge late payment fees on their invoices but that only works in certain industries. If you’re able to do this, ensure your clients understand this from the outset. You can’t charge a penalty without notifying the customer up front.
Find out your clients’ payment cycles
How soon you chase an invoice will depend on your business and your clients. Some of my clients chase their invoices the day they’re overdue. Others know their clients will pay on a certain date – it does help to find out your clients’ payment and billing cycles if you can. This prevents you from chasing an invoice that’s already scheduled to be paid.
But don’t leave an invoice for too long before starting to pursue it; debt collectors have told me many times that the longer you leave the debt, the harder it is to collect.
Automate your invoice reminders
You can set up a reminder system in Xero to automatically email your clients once an invoice hits a certain date overdue – 7, 14 or 21 days, or set your own reminder date. If you don’t use Xero, come up with a system and have a reminder email template ready to send. That way you make it as easy as possible for yourself even on the busiest days.
Keep track of your efforts
Once an invoice is more than 90 days overdue, you should be chasing it using more than just friendly email. Keep a spreadsheet or other record of all the emails you send, phone calls you make and even any visits in person. Make a note of what the client has promised and what has been delivered. This will be a great help if you have to hand the debt to a third party.
Be cautious about further business
Stop credit for persistent late payers and ask for part or full payment up front if they want to do business with you again. Good luck collecting your debts and let us know if we can help you with your cashflow projections for 2016.
By Manisha Kesha.