The term cash flow is a terribly ironic one to a lot of small business owners. After all, cash is rarely flowing freely. Instead, it’s held up behind a dam of bureaucracy and client excuses. And it can be a big problem.
Not getting paid on time means that you can struggle to meet your own bills. Often, small businesses have to ask their staff to wait a little longer for their paychecks. And in extreme circumstances, it can mean that the company ends up getting shut down.
Recently YouGov asked small businesses whether they had ever had problems with late payments. Of the hundreds of firms surveyed, only 12 percent said that they had never received a late payment. What’s more, over half of small businesses have had to wait over two months to get paid by customers.
Late payment is clearly a big issue for many small businesses. So what can be done about it?
Ask For A Deposit Up Front
Taking on a job for a new client can be a significant risk. So you may want to ask them to pay some money up front. The last thing you want is for them to start disputing your invoice or failing to pay when the time comes.
Many small businesses shy away from taking deposits, as they don’t want to put off potential buyers. But taking deposits can actually create a good impression for your business. It shows that your business is serious about its stakeholders and it shows a savviness with taking on new work.
Once a client has made a payment, they’re more likely to want to see the project through to completion. Thus, making a customer pay a percentage up front can help separate the good clients from the bad.
Make Payment Simple With Merchant Accounting
A lot of small businesses don’t use merchant accounting. Instead, they rely on invoices and bank transfers. This might be the default method, but it’s both slow for the business, and time-consuming for the customer.
The NAB website explains how this process can be sped up. Merchant accounts allow customers to pay through more convenient methods, like credit cards. They can also accept Apple Pay. Companies that take the hassle out of paying tend to get paid an average of two days faster. That might not sound like an awful lot. But remember, it’s the 20 percent of clients who pay a fortnight late that cause you the most problems. You want to eliminate as many of their excuses as possible.
Include Penalty Clauses
Penalty clauses are an excellent way to incentivise your customers to pay up, especially if they are prone to letting you down. You’ve got a couple of options here. You can either charge them a flat fee the moment the payment deadline has passed. Or you can charge them interest at a daily rate for any amount outstanding. Just make sure that when they sign up to an agreement that the penalty clauses are pointed out.