Cash flow concerns can be enough to have you waking in a cold sweat in the dead of night, and while it’s inevitable that there will be both tricks and treats along the way, there are things you can do to keep your credit under control – and avoid any knock-on disasters when a customer’s payment is late.
Even one late payment can be disastrous if it’s for a large sum of money, or from a customer who you thought you could rely on to pay promptly, so manage your total liabilities from the outset and take fast, comprehensive action on overdue invoices, and you should be able to sleep more soundly.
Trick: Make sure you agree payment terms in writing upfront, so your customers can’t say “I didn’t know” when their invoice deadline arrives.
Treat: This will allow you to charge full statutory interest on overdue payments, helping to make up for the financial impact of late payments.
Trick: Run background credit checks to determine how much credit you should allow each customer before you expect them to make a payment.
Treat: This might not reduce the risk of them failing to pay, but it allows you to balance your income with your liabilities, so you don’t run the risk of finding your company coffers empty due to non-payment of a big invoice.
Trick: Be firm but fair. Chase for payment promptly when an invoice goes overdue – the sooner you take action, the more likely you are to receive payment in full.
Treat: Clear and consistent invoicing and action on late payments helps to make you look professional, discouraging new and existing clients from trying their luck on payment deadlines.
All of these tips acknowledge the fact that, eventually, somebody will fail to pay you on time – this is an inevitability, and the important thing is to be prepared for when it finally happens.
Protecting your cash flow means limiting your liability upfront, putting terms down in writing, and enforcing them promptly when the time comes.
Get this right, and you can avoid a cash flow nightmare when the spectre of late payment comes for you.