For most of the businesses, whether large or small, initial years of new business are usually tough. They have to constantly battle for survival in the increasingly competitive environment. Starting and sustaining business is not remotely easy unless you are more alert and disciplined in managing business finances.
One of the common and major problems encountered by small businesses is getting cash into the company; money that the clients owe but delay in paying for one reason or another. It is difficult for start-ups to have big cash to play with, so delayed receipt of payments from clients could become a serious problem in more ways than one.
As an owner you must prepare yourself to protect your business from this problem by observing certain good practices in much disciplined manner.
Define your Terms of Payment
Before starting trading, you must address an important issue of payment terms for clients. You must specify credit period during which client will be required to pay all dues. As start-ups need ready money, particularly in the early days, cash on delivery could be an option. But this may not be possible in many instances where account facilities and credit terms are offered and expected as a normal practice. In order to convey a professional image, if you can stand it, allow credit period of maximum 30 days, which is generally acceptable.
Allowing credit account
Allowing a credit account is an expression of possible long-term relationship with the customer. But you must vet the customer first by seeking a few credible business references and one from customer’s bank as well. Check those references. Tread with caution; an account is only good if the customer pays dues regularly. Carry out credibility checks first – be safe.
Don’t let outstanding payments pile up
Many small businesses put themselves in trouble by extending unlimited credit and extra time to pay dues because they apprehend that refusal of credit will lead to loss of client. This may be possible, but you must remember that client who owes you overdue money, hasn’t spent anything until that amount goes into your business account.
If you have provided service to a client or produced work for them, then it isn’t unreasonable to demand payment on time. Don’t be afraid. Enforce your payment rules; after all it’s your money!
Remind clients for payments
Don’t entirely rely on efficiency of your client’s accounts department for payment of invoices. In the monthly cheque run invoices usually get overlooked or forgotten, resulting in wait for another month. To avoid this, telephone your clients’ accounts departments in advance before due date and confirm if payments will be made on time. If there are any problems get them resolved at the earliest.
Managing company’s income is not easy. It is time consuming and much difficult because of different practices and procedures used by clients. As a business owner it is your responsibility to implement effective credit control system, which is so essential for sound healthy of your business.
