According to the Australian Bureau of Statistics, more than 300,000 small businesses are started every year. Less than half make it to the four-year mark.
There’s also a saying in business: “Profit is queen, but cash is king.” If you’re a business owner, it is critical that you understand the difference between profit and cash, especially with the economy still sputtering and banks reluctant to make loans. It could determine whether your business survives or fails.
So how about we do each other a favour and pay all your debtors before Christmas? Let’s all get on that nice list before it’s too late!
We know running a small business can be tough. Long hours, the necessity to wear many hats and the constant stress of cash flow. Keeping a steady cash flow can be even tougher over the Christmas period when employees, contractors and bills still have to be paid and the revenue slows down for some businesses like ours.
It is therefore essential to ensure that debts are kept under control especially over the Christmas break. But what if there are clients who are behind in payments or just simply refuse to pay on time, or even at all?
The short of it is you need a BIG savings buffer to get through the holiday periods or easy just a rainy day. Our HR advisor recommends you should have ‘cash cover’ to be able to pay your staff for 3 months in the bank at all times as a safety net, not to mention funds put aside for quarterly superannuation payments, BAS and tax.
So how many clients do you have on the naughty list? The ones that you have to continually chase to ensure they pay for the service you have been contracted to provide and have provided. The service that at the time of sign off was apparently needed ‘urgently’ and ‘immediately’ but that the payment for the service does not seem to have the same terms.
After an invoice is issued most businesses will stipulate the due date – often 7 days, but the reality of the average time your clients take to actually pay can be double or even more than this.
Automated invoice reminders being sent out to clients at key points in the payment period can really help. We send one at 7 days (the due date), 10 days (friendly reminder), 21 days (getting firmer) and 30 days (letting the client know that if we don’t hear from them, the matter will be referred to the debt collector). This may sound ruthless but in our experience it is necessary. Without these in place our cashflow is considerably worse than usual. We learnt this the hard way earlier this year when we discovered one of our team had accidentally turned off all invoice reminders for all clients. Talk about a cash flow slow down! The moment we turned it back on, things instantly improved. Thank goodness!
The fact of the matter is, some clients are repeat offenders and plead ignorant to having never received any communication and not knowing money was owing. Unlucky for them, we can tell when an invoice has been viewed and we quite often send emails to more than one account and call more than one phone number. Sometimes we even send a message on Facebook or via a contact form on their website if we have to. This however does take up an extraordinary amount of admin time, sometimes just to recoup less than $100.
So what do we do about these naughty clients? Do we accept that they too are small businesses and money may also be tight? Or is it just one vicious circle in small business that no one can afford to pay bills because no one receives money from their clients on time?
Key we think is to set expectations up front, and enforce them. We also offer multiple methods to pay us including direct debit options, the ability to pay online using a credit card and bank transfer. We are even in the process of offering the ability to make payment in Bitcoin and other cryptocurrency!
Want to learn more about this?
SEE OUR WEBINAR RECORDING ABOUT BITCOIN & CRYPTOCURRENCY!
Happy Christmas! Hope you’re on the nice list. 🙂