A Practical Guide How To Improve Your Cash Flow

16th July 2019
John Mather

Below are a few practical ideas on how almost any sole trader, small business or Limited Company can accelerate their cash flow:

  • One of the best ways these days (C21st) is to gradually move all your customers over to Electronic Payments to pay you, rather than have them send you cheques (so C20th). Initially this involves handing all your customers your bank account details, so they can pay you directly and (almost) instantaneously. This requires you to change your financial procedures, so that your Finance Director / Manger or Finance Clerk has live access electronically to your bank accounts, to see who has paid you and when etc.
  • Electronic Payments starts to take the problems of physical cheques, the need for a personal signature and the infamous risk (excuse) of blaming the postal system, as Electronic payments are immediate (though banks always quote 2-3 hours), so customers don’t really have any excuse not to pay you on time.

So, when is the best time to start chasing invoices for payment?

  • All your customers should be signed up to your own Customer Terms and Conditions, in which you should have included a clear / explicit timetable when Invoices are due for payment and what the consequences are for not paying on time, so that there is NO room for excuses.
  • As much as you would like to have high / usurious interest charges for late or non-payment, for example having 2% / month late interest charge in your Standard Customer legally-enforceable contract, this would probably invalidate the whole Customer contract and the of Terms & Conditions as it is legally “unreasonable”. At which point, I strongly suggest you should always draft up a standard customer contract and get your friendly solicitor to advise you on what you can and cannot put in your Standard Ts & Cs to make it legally enforceable. Make sure to include delivery T & Cs, Acceptance of delivery) Ts & Cs and Payment Ts & Cs, remembering to include how and to whom and by when the Customer should complain about your delivery to them, or quality of your product or service. If they then do not raise a Ts & Cs dispute with the specified person in your company, then payment should follow the timetable defined in their contract.

To answer my own question (above), WHEN your finance person should start calling each of your customers’ finance staff ahead of the payment date, to remind them of the date when the Invoice has to be paid into your account, not received at your office, but paid in to your account and talk them backwards through the various stages (days) they need to pay the outstanding invoice in to your business account; This should include for example, getting the payment authorised internally, talking them through the payment process and actually having the payment received by you on the correct date.

By talking your customer finance staff through this process it commits them verbally to the timetable and implicitly reminds them that you’re ‘on the ball’. If payment is not received, just call them back and ask them to explain which part of their process failed, making notes for subsequent payments. The main point of all this work is to build a relationship with your Customers’ finance teams, that you document (in your CRM system perhaps) the payment record of each of your Customers / Debtors, which the Salesman or Director can discuss with the Customer periodically, commending them when they regularly pay on time.

Finally, no matter how late, explicitly Thank each Customer for their actual payment and record how timely their payments are and how difficult or easy it is to deal with this Customer’s finance staff. This information should form a monthly 1 pager summary for your Director on how on time / late / hard work it has been to recover all your Invoice payments from each of your customers.

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