When you supply goods and services, you expect to be paid, and promptly, but Britain has a deeply embedded culture of late payments. Indeed, for some businesses, delaying payment is an essential part of the business model.
Outstanding payments are problematic for various reasons. First, there’s the basic problem of cash flow within the supplying business – electricity bills, rent and other regular outgoings need to be paid regardless.
With all that in mind, the question is, what methods can you deploy to improve cashflow?
Plan for eventualities
One of the first rules of running a business is to have a business plan and review it at regular intervals. Avoid looking too far ahead and focus your planning on three different scenarios so your business is braced for all outcomes in the short term.
Ask yourself what is a realistic baseline for your business? Is there any precedent to suggest what will happen further down the line? It would also be wise to prepare a checklist – ranging from the risks of natural events to personnel changes or supply chain issues – to revisit in the future.
The dynamics of managing cash flow are not a case of feast or famine, they involve being thoroughly prepared, staying rational and aiming to break even. After all, most businesses achieve growth from a steady base.
Clarify your payment terms
Most businesses, including accountancy practices like ours, offer a no-obligation initial assessment before agreeing to undertake work for a customer.
It enables us to deliver a quote for the work, agree a fee with the customer, and gives us an opportunity to clarify how long the client must pay. You should always outline what you will charge in interest should your client exceed the time limit to settle your invoice.
You should make it crystal clear to your customers that they need to pay you on time, every time. If you don’t specify a deadline for payment, the default is generally assumed to be 30 days from the receipt of invoice. After that point, statutory interest can be charged.
Clear, accurate and quick invoices
It may sound simple but being able to issue your customer with a clear, error-free, prompt invoice offers you the best chance of being paid on time.
You should contain all the relevant information on your invoice, starting with boldly displaying the word ‘invoice’ and going on to include your pre-agreed terms and conditions.
In addition, you should include the following:
- a reference number
- the name of your business
- its address and contact detail
- the customer’s name and address
- a clear description of the service provided
- the date supplied
- the invoice date
- the amount charged plus VAT (if applicable)
Also bear in mind that you need to keep any invoices for six years in case HMRC comes knocking to further scrutinise your record-keeping.
Technology offers you an opportunity to make your business’s processes more efficient. Several pieces of software are on the market enabling you to submit digital invoices to customers, including user-friendly ways for them to pay.
For example, you can invoice a customer from your smartphone as soon as you get into your van after supplying a service. The customer can submit payment online, putting the cash in your account immediately. On to the next job.
Using software also enables you to monitor your business’s cashflow in real-time, tracking money from anywhere with a 4G, WiFi or internet connection. Then there is the small issue of security, which is handled in what we accountants refer to as ‘the Cloud’ – a secure system for data storage and transfer accessed online.
As well as reducing the risk of accidentally deleting files or running into problems with version control, storing files on the Cloud also offers better opportunities for collaboration. Depending on who you give access to your files, you can work on documents at the same time as your staff or external parties.
In the current climate, rigorous cashflow management and meticulous invoicing remain vital disciplines to keep your business afloat. If you’d like more advice on how to manage your cashflow, get in touch or follow us on LinkedIn for regular tips!