Tweak your business practices so you can get paid faster
We all know that cash flow, or the lack thereof, is far-and-away the biggest killer of small business. Roughly 60% of Australian small businesses fold within the first 2 years due to cash flow problems. So, what can you do to make sure your business doesn’t become a part of that statistic?
How do you generate your income?
Firstly, understand how your business generates income. Unless you’re running a charity, you’re in it for the money. Yes, you might also get to spend your days living your passion and enjoying a flexible lifestyle, but cash is currency and unfortunately, good vibes and “exposure” won’t pay your electricity bill.
Once you know how your business is making money, look at the total time in days between landing a new gig and converting that into cold hard cash.
Most of us spend so much time looking at marketing funnels and how much it costs us to convert a prospect into a lead into a customer, but for some reason, we stop there. Understanding what happens next is fundamental to managing your business’ cash flow.
How long does it take you to get paid?
Have you measured how long it takes you to convert your work-in-progress into an invoice? Do you invoice weekly, fortnightly, monthly, at intervals, on events, on completion? What system are you using to remind yourself to invoice regularly?
When it comes to cash flow, consistency is key, so set up a schedule and stick to it.
Once you’ve issued your invoice, how long does it take your client to pay you? Are they a corporate customer, whose Accounts Receivable rules mean you don’t get paid for 60 or 90 days? Can you negotiate? Can you afford to offer incentives for prompt payment?
Do you provide incentives to get paid faster?
What about a carrot and stick approach-motivating with discounts and punishing with late payment interest? How about holding back the product until you’re paid in full, issuing watermarked or “locked” product in the interim? I’ve successfully used this tactic in my own business to get my invoices paid within 15 minutes of sending them to my clients. Amazing, right?! Imagine the difference that would make to your business’ cash flow.
Most of us use modern accounting systems now with the capability to schedule automatic reminders. Use them- but don’t lose the personal touch. Customise the reminder emails so they speak to your core values.
And don’t hesitate to pick up the phone – a phone call is a lot harder to ignore than an email jostling for space in an overflowing inbox.
Use technology to your advantage
Speaking of accounting systems, have you integrated your invoices with a payment gateway provider? The fees they take off the top might seem a little hard to swallow, especially when you’re strapped, but making it as easy as possible for your clients to pay you is a sure fire way to get paid faster.
In order to have a cash flow positive business, you need a strict, consistent collection policy to ensure the shortest possible time between you doing the work and converting it into money in the bank. Add to that a marketing funnel that you know converts and that you’re able to keep full, and you’re well on your way to success.
Need more help?
Do you need help implementing a collection policy with your clients? Talk to us about how we can help. Our first consultation is free – book now.