How to improve Cashflow …
When the Accounts Receivable Balance is slowly growing, it’s time to look at how to reduce those unpaid accounts.
Feeling tense? Are the ‘unpaid invoice’ balances in your business books slowly growing each month?
Your business has provided the product or a service and the payee will not settle their account within an agreed time-frame. This creates stress in several ways:
Stress from …. impact on your mindset over the issue of having to deal with slow or non-payers
Stress from …. the wasted time in chasing and attempting to retrieve YOUR money
Stress from…. impact on the lowered bank balance without due funds…
Stress from …. from an inability to settle due bills, if the business has insufficient cash reserves.
Let’s get pro-active. Review options to reduce those long-standing unpaid accounts
Review your business payment options. Can you bill for some products or services prior to delivery? Ask for a deposit? Other options can be to request part payment upfront before accepting the order and doing progress payments. If the project or service has a high value, progress payments are a good option.
Send invoices out as soon as job/goods are supplied. Don’t wait for the end of the month to do your invoices. Clients may have the ability to settle the account immediately on receipt of your invoice – so get it out. (Ensure your invoices are correctly addressed to the company’s legal trading name and include address too – this is important especially if debts need to be passed to a collection service.)
Seven Day Payment terms: In these days of online/credit card payments, there is a growing trend of many businesses moving to ‘seven-day payment’ terms and ditching the end of month payments. Advise your clients, and print the terms on your invoices. For large contracts or ongoing supply contracts, businesses may request monthly payment terms but do be clear on agreed payment terms, including any default charges. Ideally you should have an agreement with clients on credit with high cost purchases.
Payment Options: Make it easy. Many businesses do online banking today. Have the bank account clearly printed on invoices you send – this helps encourage early payment. If your business accepts credit cards – state this on invoice too.
Xero offers a super feature on emailed invoices to clients to encourage quick payment. Clients can click on your invoice and select payment options – making online payments by credit cards or direct debit cards.
Action Stations – still no payment …. Let’s fire up the reminders now!
Still not paid by the due date? A day or two past the due date and no payment are showing – send a reminder email to your debtor.
No response? Email again, accompany it with a friendly letter of notice of account being overdue – and any likely interest charges from ‘x’ date being applicable.
Your Terms of Trade. You do have them, right? Because should you plan to charge late penalty costs on unpaid debts after a set time, or pass on debt recovery costs, these need to be clearly written in your terms of trade. (See our blog about trade terms ⇒ Terms of Trade)
Still No Funds? At this point, you need to review your options. Emailed invoice copies? (Remember to also send copies by registered post to their legal address, too).
Use the phone: Call to the business owner or company director, and ask them if there is a ‘problem’ and request immediate payment of the account. No need to be aggressive, just be firm and friendly and fix on a set timeframe for payment.
Another option is to offer the client opportunity to repay the debt in instalments over time. (Or the client may ask.) This can be a good option where the client usually has a good track record, and likely to keep using your services in the future. Once a resolution is agreed on, send an email confirming the reviewed payment date(s). This creates a track record, should you still need to pursue debt collection later.
No Funds still even after phone calls and messages ? … Final Options
Option One: Write off the debt in full, as IRD allow it as a deductible business expense, plus reclaim any GST paid if your business processes GST on an Invoice basis.
Option Two: Contract a Debt Collection Agency. They will require information about the client’s, address and processes you’ve undertaken. So it is useful to hold a record of the actions taken to retrieve payment.
Option Three: Your business may opt to pursue the debt through legal means. Your lawyer should be able to advise on this process, and it can be expensive.
Should the debtor dispute the debt is owed to your business or even the amount payable, and they must advise this in writing to your business, you cannot pursue actions in recovering the outstanding account. You will need to instead review legal actions such as going through the Disputes Tribunal process, or via the District Court. Check on New Zealand laws such as the Fair Trading Act or Consumer Guarantees Act, as consumers may have rights your business cannot overrule.
We hope the information above was helpful. If you are struggling with bookkeeping duties, please do contact us at Do The Sums Book Keeping and More. We may be able to help you manage your bookkeeping routines better, including managing your Accounts Receivable balances. Or we can review options of taking over these duties for your business. Either way – contact us today.
Message me today: email@example.com and we work with you to help you with cash flow issues.
Take that weight off your shoulders and get that cashflow coming in …