One of the key steps to maintaining a stable cashflow is to keep on top of your customer debt. In times of economic struggle, customer debt can be one of first areas to become affected as clients struggle to pay their invoices to you on time, which can in turn affect your profitability too. Within this blog post we explore how you can manage customer debt.
20% of UK start-ups fail within the first year and poor cashflow management is one of the main reasons for this as without a smooth cashflow, businesses cannot pay their bills, develop the business, or hire new staff. Therefore, credit control processes become critical to managing customer invoices and ensuring that unpaid invoices are handled efficiently to avoid financial problems.
According to the FinTechTimes, a staggering £61 billion is currently owed to UK SMEs as a result of late payments, and one in four SME’s claim late customer payments are causing them to struggle financially.
The current cost of living crisis is affecting households and businesses alike, and SMEs across the UK are beginning to struggle with rapidly rising costs for raw materials, energy, and wages. Therefore, it has never been more important to concentrate on your cashflow and implement clear credit control processes. We have outlined our ten top tips below:
It may seem counter intuitive to turn work down, but it is important to conduct a credit check on customers and decline work for any who look unlikely to pay their bills on time. Unpaid invoices for several months of work could leave large holes in your finances so it would be better to try to avoid this by saying no to customers with poor credit ratings from the start.
Always invoice as soon as work is complete rather than waiting until the end of the month and check who to address the invoice to. This will help avoid unnecessary delays as the invoice is passed around the customer’s business to the correct person.
Establish expectations from the offset and outline clear payment terms before any work is conducted. If the customer suggests a payment term of 90 days for example, it gives you the opportunity to decide whether to proceed with the work or not.
A good credit management software, such as the Credit Management Centre in Opera 3 will give you easy-to-understand, real-time graphs displaying your overall financial status so you can see what is owed, who owes it and how much money has been promised by customers. This gives you all the information you need to improve cashflow, reduce bad debt and improve the overall financial position of your business.
If you can afford to do so, you may consider offering discounts for prompt payment to encourage customers to pay their invoice quickly.
If your customers owe you money, then don’t be afraid to ask them for it. Some businesses will take your silence as acceptance for a late payment, so if you want your invoice paying then chase your customers for payment.
It goes without saying that you should always strive to maintain good business relationships with your customers. If you have a good rapport with your customers, it’s likely you’ll be one of the first they pay.
Depending on the nature of your business, it is becoming popular to request a partial payment upfront for high value goods or services. This will give act as a buffer to your cashflow while you wait for the remaining invoice to paid.
Where possible try to ensure you have a diverse customer base. If all your customers are within one industry sector, and that industry slows down, it will have a direct knock on affect to your cashflow. By having a diverse customer base you’re giving yourself some protection for unforeseen circumstances.
Some customers will prefer traditional paper invoices, and some will prefer email. Cover all bases by sending an email invoice and following it up with a paper copy so there are backup copies if invoices get mislaid.
Businesses of all sizes are experiencing turbulent and challenging times at present with rising costs creating pressure to maintain a smooth cash flow, but unpaid invoices at record highs as a result. Within this blog post we have explored several ways to help implement credit control processes and develop effective credit management processes, which we hope will help you. If you would like to discuss the Credit Management Centre in our Opera 3 ERP solution then please contact us today to arrange a free demonstration.
Posted On: October 26, 2022
