Puzzle Finance Blog


Making your cash flow faster


Picture this: a new client asks you to complete a job at short notice. You do the work, the client is happy, your invoice is sent, and a month later the bill remains unpaid. So you send a reminder email that goes unanswered, and follow up with a phone call that is not returned.

You don’t want to push the matter too hard and damage a new relationship. As a small venture, you don’t have a lot of power or resources to take on late-paying big companies.

But you have bills to pay and can’t afford a client to threaten your company’s cash flow, or its survival. Eventually, the bill is paid three months later, and after several stressful time-wasting follow-ups. Or not at all.

Sound familiar? Welcome to the world of many small ventures, where getting paid sometimes feels like a lottery, and where getting paid on time is a luxury. A world where honest, hard-working business owners can go bust because a client treats them like a bank for several months.

Yes, there are plenty of stories about how small ventures can improve their cashflow management through smarter debt-collection procedures. To be sure, many of them are hopeless at chasing up overdue invoices, and in turn allow themselves to be treated like an ATM.

A bigger problem is when emerging companies are brainwashed to pay bills as late as possible – well beyond agreed terms - to improve their working capital.

For small ventures, paying bills late and making life torture for suppliers by stretching out payment is usually dumb business. It has a marginal effect on cash flow and damages supplier relationships and the firm’s brand. 

I’d argue that firms that pay bills early – or even on time – create a huge competitive advantage through building stronger relationships with their suppliers. People want to work for the business and do a great job, because they appreciate early, reliable payment. They can spend more time on the work, rather than hassling clients to be paid.

It takes  52 days on average for businesses to be paid in, according to the latest trade payments data from credit-reporting agency Dun & Bradstreet. That’s down from a peak of 57.4 days during the GFC in 2009, but firms are still waiting more than three weeks longer than standard payment terms. Firms in New Zealand only wait an average 40 days to be paid.

D&B says 62 per cent of accounts in Australian are settled late and that about seven in 10 firms are concerned about their cash flow in coming months.

My guess is many small ventures wait considerably longer than 52 days to be paid. Their invoice terms – payment required within 14 or say 28 days – is little more than window dressing.

Rather than advise small companies how to be paid faster, the five tips below are for companies that take forever to pay their bills, or sometimes cannot pay them. Hopefully, the advice can help more late payers (some for reasons beyond their control) to better manage the process.

1. Be clear on payment terms: When commissioning work, ensure the supplier understands your payment terms and billing problems. Part of the problem is poor communication upfront: the supplier expects to be paid within 30 days, you only pay after 45 days, for example.

2. Ensure staff handle bills appropriately: Nothing frustrates suppliers more than staff in a big company sitting on a bill or refusing to forward it because it has low priority. If your staff commission and handle supplier invoices, ensure they know what is expected on receipt.

3. Be upfront: I had a late-paying client who refused to take my calls or answer emails about unpaid bills. It exacerbated the situation. Explain to suppliers if you are having trouble paying a bill and reasons why. Ask them to treat the information in confidence. That has to be better than letting suppliers think your firm is yet another that does not pay its bills and rips people off.

4. Be specific: Telling a supplier “I’ll pay you as soon as I can” is not good enough. Give a timetable, as best you can. Perhaps it involves part-payment of a bill over several months, as well as interest on the outstanding debt until repayment. Aim to pay as least some of the bill straight away if you can.

5. Do not confuse work and personal life: Never tell a supplier you cannot pay a bill because of a personal situation: an unexpected tax bill, personal financial problems, or a bad investment. It’s unprofessional and, in my experience, just inflames the situation. Blurring work and personal life only makes your firm look more inept in the eyes of suppliers who just want to get paid.

What’s your view?
  • Does your business struggle to get paid on time by clients?
  • How many of your clients often require at least one reminder before they pay?
  • What is your worst experience of being paid late (no names, please).
  • Is it getting harder to be paid on time?
  • Do the benefits of paying suppliers early outweigh the costs?


Read more: http://www.theage.com.au/small-business/managing/blogs/the-venture/making-your-cash-flow-faster-20130219-2eob2.html#ixzz2LNe3K7xu

Posted by Tony Featherstone - The Age on 19th February, 2013 | Comments | Trackbacks
Tags:

Bookmark and Share

The trackback URL for this page is http://www.puzzlefinance.com.au/trackback?post=26681141


Trackbacks

There are no trackbacks for this post


Comments

There are no comments for this post


Post a Comment

HTML is not allowed in comments, http://... will be automatically linked.


Name (required):


Email Address (not displayed):


Comment (required):


To help prevent spam, please enter the word bash here:

Puzzle Finance Blog

About Puzzle Finance


Archives

September 2017
August 2017
July 2017
June 2017
May 2017
March 2017
February 2017
January 2017
December 2016
November 2016
October 2016
July 2016
June 2016
May 2016
April 2016
March 2016
February 2016
January 2016
December 2015
November 2015
October 2015
September 2015
August 2015
July 2015
June 2015
May 2015
April 2015
March 2015
February 2015
January 2015
December 2014
November 2014
October 2014
September 2014
August 2014
July 2014
June 2014
May 2014
April 2014
March 2014
February 2014
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012
October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012
January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011
March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010

Tags

Purchase or Rent (1)
The Age (1)