Making your payment terms strictly 30 days is a simple but effective way to maximise your cash flow – it doesn’t put customers under undue pressure by expecting them to pay upfront, but it also doesn’t reward those who fail to pay on time.
If that last part sounds strange, then it’s worth recognising that by allowing debtors to keep hold of ‘your’ money for longer, you are literally rewarding them financially for failing to pay, whether it is by allowing them to accrue more interest, or to tackle other bills using money that is rightfully yours, or simply due to the rolling effect of multiple unpaid invoices piling up.
As a new year gets underway, you’re likely to be dealing with a mountain of overdue invoices that were not paid over the Christmas break – and it’s more important than ever to make your payment terms strictly 30 days at this time of year.
You might think it is ‘fair’ to give people longer to pay you, given that we’ve just had Christmas, but there’s no real logic behind that.
The cost of Christmas itself should have no bearing on people’s ability to pay you in full; if they are running their business properly, they should have money in the bank to service their debts, and only then should any spare be used to pay for employee Christmas parties and extended paid holidays.
In fact, the only real ‘fair’ approach is for everyone to continue to enforce their payment terms as normal; this puts the new year back on schedule as soon as possible, and prevents any unwelcome shocks from echoing up and down the supply chain due to constrained cash flow.
If you’re suffering from the January blues yourself, either because you’re finding it difficult to get back up to speed after the break, or in terms of your own constrained cash flow, outsourcing credit control can help by taking the admin out of your hands and into the grasp of a specialist team who will not let the paperwork slide.
Outsourced credit control teams are more about the ‘January reds’ – the red-top reminders of overdue invoices that might look quite festive, but are an essential indication to debtors that Christmas spirit is now in the past, and it’s time to get back down to business.
These letters do not have to be too harsh, but it is particularly important to remind debtors of invoices that have been outstanding since before Christmas and the New Year, as these can be the easiest to forget when the office reopens in January, even if they have been owed for the longest.
Happy New Year
It’s impossible to pretend the Christmas break isn’t a huge interruption to the everyday admin of running a business, including paying what you owe to suppliers, and it’s understandable in such circumstances that the occasional invoice might get missed – but it’s not an excuse for widespread non-payment, as professionalism alone should ensure prompt payments are still made.
By reminding your debtors of what they owe, you are clearing the slate for the coming 12 months, and there is absolutely nothing wrong with doing that – you can rest assured that many of your own suppliers will be doing exactly the same thing.
On top of that, always remember that money owed to you is rightfully yours, and there should be no shame in reminding people to pay, especially on overdue invoices.
Get the money you are owed into your account as soon as you can, and you can start the new year on a positive note, with your credit control in check, and with your cash flow looking as healthy as possible in a part of the year with more than its fair share of tax deadlines to meet.