10 strategies to get your clients to pay you on time and improve your cash flow instantly.

Late payments create unnecessary financial stress - there is no doubt about that. And this is particularly true for small to medium-sized businesses.?

The survey conducted by SAGE?in 2017 (in 11 countries) showed that over 30% of SMEs currently experience or expect to experience delays in payment that will negatively affect their day-to-day operations, payroll commitments, and supplier payments. In addition to that, 10% of late payments on average are written off as bad debt.?

Default rates will be increasing rapidly due to Covid-19.

Cash flow is a key concern for almost every business during "normal" economic conditions.?

The disruption caused by the outbreak of COVID-19 will have a much more significant and prolonged impact on the financial performance of the majority of businesses. And the cash flow issues are certainly going to increase even further.?

This situation might last for longer than initially anticipated, so it is critical to apply some careful thought around how you're going to recover the outstanding debt from your clients. It is expected that payment default rates will increase rapidly as many business owners will be looking at how they can defer supplier payments into the future to survive these challenging times.?

I've been recently asked a few questions on how to best approach the credit control and collection process now (and without damaging any commercial relationships).?

Even before the COVID-19 pandemic, business owners were afraid of being "too pushy" or even coming across as "desperate" when asking for money. They're worried about the relationship with their clients, and that they'll jeopardize the future of their businesses.?

With all this negativity around the topic, chasing clients for outstanding debt in the current situation is considered insensitive.?

I genuinely hope that this article will change your mind on the matter. You don't know what the future is going to bring. In a few months, the market conditions might be drastically different. So become really efficient with collecting your money.?It doesn't have come at a cost of damaged relationships.

In the end, you're responsible as a business owner to ensure that your clients will pay you as per the pre-agreed terms and conditions. It's your business and your legacy that you need to protect.?

Be Proactive: Here's how to adapt your credit control process to the changing situation

Let's get started with a few simple strategies for you and your team that will speed up your collections and will help you adapt your process to current circumstances.?My intention here is that you will also gain more time to concentrate on leading your organization through the crisis instead of wasting time dealing with late payments.?

Make sure that your invoicing process is up to scratch

You must remove any possible friction from your invoicing process and do everything you can to speed it up.?

Have you ever reviewed how the invoices are issued in your business? What's the exact workflow and timeline between the job done and your client being invoiced??

I know - it's not the most exciting project for a business owner, however, now is the time to look into it!

An example of an invoicing process could be as follows:?

1. Capture the data - your team members log their billable hours and enter the data into a software (preferably not on paper) so that your bookkeeper can access it easily.?
2. Create the invoice - your bookkeeper logs into the software and creates invoices based on the information provided by your staff.?
3. Approve the invoice - you (or your managers) approve the invoice.?
4. Send the invoice out - your bookkeeper sends out the invoices right away, upon your approval.?
5. Request a confirmation - add this step to your process. Contact your client within a few days of sending out the invoice to confirm that invoice has been received, and it has been approved for processing and payment. This is your opportunity to find out if the invoice has been disputed for any reason.?
6. Start the collection process - if the invoice is not paid immediately - the first call should be 15 days out from when it was sent out. Even if you offer 30 days terms - I strongly recommend following up with your client to ensure that the invoice has been approved for timely payment.

Setting deadlines for each step to accelerate the whole process is crucial.?

An invoice can only be paid when issued, so make sure that you keep to the deadlines you set. From experience, I know that business owners and directors don't always respect their own deadlines as such administrative tasks are not usually their priority.?

Add this small feature to improve your collections instantly

Offering several payment methods can be very beneficial to your clients. Accept credit cards and Paypal. Even though they incur additional fees, they make the payment process very easy and secure for your customers. Use payment services like Stripe or GoCardless.?

According to a study conducted by Xero, adding a PAY NOW button to your invoice gets it paid, on average, 15 days faster!

Make it easy for people to pay you!?

There is more to watch out for

• Make sure that you know exactly who your invoice should be sent out to (i.e., is it your client directly or their finance department representative?)
• Take into consideration your clients' internal procedures - do they require a purchase order number on the invoice? Do they make payments on a monthly basis only? This will give you an idea when you can expect the funds from them. Do you know this can speed up payment of your invoice by 30 days??
• ?Make sure your invoice is not rejected due to missing information (e.g., VAT number). I can't stress enough how important it is, yet so many small business owners don't get this right.

Help your team make informed decisions

To say that everyone hates credit control and chasing overdue invoices is an understatement!?

Having said that, it's time to get your team involved in the process (if they haven't been so far). Get them on board and make sure they know their responsibilities when it comes to getting money from your customers. Who in your team maintains the closest relationship with the client you're chasing? It might not be you, might be your sales team, for example.?

Communicate internally with your team and discuss the situation of each client. Make sure they're aware of the outstanding balances. Who's behind on their invoices? Who's on a payment plan??

Put a system in place so that everybody in your organization is up-to-date, and you (and your team) can make informed decisions about future sales.?

Absolutely avoid making sales to high-risk customers who have a number of long-outstanding invoices already.?

Talk to your customers often

I'm sure you have already contacted your clients to check on them and find out the impact Covid-19 is having on their business.

Have you reviewed your debtors' ledger? Which accounts have been outstanding for an extended period of time (over 90 days)??

In not, do it now and prioritise whom to contact first based on the outstanding balance, turnover, and based on your assumption of how likely they are to be affected by the pandemic (f.e., hospitality business vs. a mobile network provider).?

Negotiate and incentivise new payment terms

Your customers will be very likely to experience the negative effects of the lockdown (if not yet, then in the near future), and they might not be able to pay all the accounts right away.?

We do need to empathise with them and respect their position. They're your partner, and it's vital to ensure that our relationship remains intact (as much as possible). Take this opportunity to have an upfront conversation with your customers about overdue invoices and discuss payment arrangements.?

One way to do it is to get your clients to commit to weekly or monthly payments and negotiate a payment plan with an amount they can afford. You could even take it one step further and set up a direct debit rather than expecting them to pay it to you.

Another option to consider is to incentivise early payment and to offer a discount for paying upfront. Encouraging prompt settlements will provide a cash injection to your business and reward your clients with a cost-saving.?

Can you afford new payment terms?

Carefully think about what payment arrangements you could offer to them? Have you got a reliable cash flow forecast in place so that you can see the impact of possible delays? Are you able to offer instalment plans or extended payment terms at all??

As much as you can, support businesses going through a cash crisis due to the current situation. But it doesn't have to be through letting them delay payments to you. You can offer additional services, advice, or consultation instead.?

To press or not to press?

Act quickly and decide what kind of approach you will take for the debt collection process.?You can take two approaches with your clients:?

• You can decide to take a softer approach - if you have strong commercial relationships and some visibility into the financial situation of your clients and the sector they operate in. You might consider waiting with more active and formal recovery measures until there is more certainty about the future and possible government support.?

Such an approach is only possible if your company is in a healthy financial position, and you can afford to agree more lenient payment terms. It might bring better results once you start following up in the future, and you will not damage your relationship with the clients.?

However, if you don't put pressure on debt collections, it might seem like a weakness and lead to even further delays of payments. And you'll end up at the bottom of your clients' creditor list, instead.?

• You can decide to take a stricter approach - such an approach might harm your client relationships, and even damage your reputation.?

And possibly not bring any positive outcome. On the other hand, it will put you to the top of your clients' payment list and could result in receiving due amounts early.?

Find your balance

You will want to balance these two approaches and make a decision on a case by case basis, depending on circumstances, available resources, and financial condition (yours and your clients').

Whichever approach you choose, it's crucial you take informed steps immediately. Prioritise your clients, contact them frequently, and start following up on outstanding invoices as soon as possible.??

Being polite and professional in your conversations will definitely help you move things along. Emotions play a significant role here. If your customers like you and appreciate your service, they're much more likely to put your invoices to the top of the pile.?

Your new business playbook?

"There is really only one way to address cash flow crunches, and it's planning so you can prevent them in advance."?

Elaine Pofeldt, author of the "The Million-Dollar One-Person Business."?

At this stage, I'd encourage you to take time and interrogate your entire invoicing and debt collection process. Take this opportunity, when things have slowed down in your business and review all stages: from negotiations with your clients, terms and conditions, invoicing to receiving the payment).?

Create a business playbook for credit control in your company. A business playbook contains process workflows and standard operating procedures, explaining your company's approach on how to get things done.?

In this case, you will detail every step of the process to make sure that your cash cycle is managed, and your team members will know what to do to receive the customer payments on time.?

Setting up operating procedures will reduce the risk and likelihood of running out of cash.?

You don't have to do it yourself. Speak to your accountant, financial controller, or consultant who will help you design and implement such a system in no time!?

The future of financial management is here

Research and enquire about implementing new tools and software in your business. There are so many options available now with fintech on the rise to help you with invoicing, chasing outstanding debt, and cash flow forecasting.?

If you haven't thought about it already, this Covid-19 induced crisis will undoubtedly push many business owners towards digitalization.?

Another recession is coming… sooner or later!?

If there is one thing that we've learnt during this pandemic, is that we always have to be prepared.?

Protect yourself and your company and make a plan to build a savings fund or an emergency fund. A buffer for the more challenging times as they will happen. Some customers will delay payments (for years even) or will not pay at all for various reasons.?

Put away at least three months of your operating expenses in a separate bank account. If you make a plan and manage your cash flow diligently, you will have it in place sooner than you think.?

We've experienced a recession before, and we will definitely go through it again. We just need to prepare and adapt to the changing situation.?

Next steps and my recommendations?

"Never take your eyes off the cash flow because it's the lifeblood of your business." Sir Richard Branson

Overdue debts and late payments are a common predicament for small and medium companies.?

For any business, chasing up payments from debtors can be time-consuming, and uncomfortable. There is no avoiding it, however, and particularly when COVID-19 is impacting your sales.?

Managing your accounts receivable is a crucial part of your cash flow.?

Implement these tips to make your collections process more efficient and invest your time and resources in protecting your business and preparing for the recovery instead.?

Would you like to contribute??

Answer this question in the comments: What are your biggest challenges when it comes to cash flow management in your business? Thank you!