One of the thrills of being in business is finding that new customer. The joy and excitement that comes with finding someone who wants to work with you; who loves your product or your service and who is willing to pay you for it. You roll into action, you do everything perfectly. The client is happy, you send them an invoice and then wait… nothing happens. Silence. Your heart breaks.
There is a well-known saying which is “Cash is King” and it really is. We all know that our businesses need money to survive but as well as paying wages and general day to day costs, we also need money to fulfil future sales. To use an accountancy term, it’s called the operating cycle. In the vast majority of cases you will need to buy the stock or invest some money into each sale before you receive any money from the customer. If you fail to get paid by previous customers, you can’t invest in new customers, no matter how profitable these jobs are. In fact, cash flow problems are the main reason even highly profitable businesses fail. Without cash, profit is just paperwork.
So what can you do to reduce the chances of non-payment?
The first is to invoice as soon as you have delivered the goods or service.
Never wait a week to send the invoice. You want the customer to still be filled with joy, still wowed by your product or buzzing from ideas and enthusiasm from your service.
Xero is a great tool for fast invoicing as you can create an invoice simply and quickly. You can even email it directly to your customer from your mobile phone as soon as the sale is completed. Try to create a system where you send out invoices as fast as you possibly can. Make the most of their joy.
Secondly; make it as easy for your customer to pay you soon as possible.
How often have you received an invoice and have gone to pay it, only for them to insist that you settle it by cheque? And you don’t know where your cheque book is because you haven’t used it since 2004. Or you need to pay the invoice by bank transfer but you’ve never paid this particular supplier before so you’ll need to dig out your card reader so you can set them up. And you can’t find your card reader because you can’t remember which safe place you left it in this time.
Did you know you can now link payment options to your invoices on Xero? This means that when you email your invoice across it will have a “Pay Now” button on it. This could link to your GoCardless account or your PayPal account. What you want to do is make it super simple to pay you, so the less stages there are for someone to get distracted, the better.
The final stage is to chase your outstanding invoices regularly.
Too often business owners chase their outstanding debts when money is low. It’s the panic followed by, “I’ll block off some time on Monday morning to make some calls but hopefully someone will pay me before then because I hate making these calls” routine.
If you’re a fan of Xero, then you’ll understand the benefits of automating simple tasks and debt collection is one of these. We recommend using Chaser. As long as you keep your bookkeeping up to date on Xero, or at very least the bank reconciliation element, Chaser is fantastic.
Chaser integrates with Xero and sends out reminders to the customers who haven’t paid you. You can write the email template so it doesn’t sound generic or automated. You can set the customers who receive the emails and when you wish them to be send out, or not if you know of a reason why you haven’t been paid.
Never be embarrassed to chase any outstanding debt. We’ve all had invoices that we went to pay but needed to find that cheque book, then the phone rang and before you know it Monday is Friday and August is October. No one would be offended by a polite reminder.
So if you have lots of outstanding debt or if slow paying customers are effecting your cash flow, try to create a new system where you follow the three steps that we’ve outlined above. Invoice quickly, make it super easy to pay you and if they forget, send them polite reminders. After all, you know that your business is great and you know that your customers think it’s great, so it would be rude for it to run out of cash.