Are poor paying customers killing your business?

Are poor paying customers killing your business?

There is little point making plenty of sales if your customers don’t pay you. In tough economic times, you need to make sure you get paid, on time.

Your customers may also be facing their own cash flow problems; however, you can’t afford to let them make their money problems, your money problem.

I am amazed when I hear businesses struggling, or going under, because customers have owed them hundreds of thousands of dollars.

How on earth did they allow that situation to come about?

Fortunately, there are things you can do to get paid and to completely avoid the cash flow problem associated with payments:

  • Insist on payment in advance or on completion
  • Sell your unpaid debts to a factoring agency: this can cost you 10-25% of the debt, but at least the money comes in quickly.
  • Offer payment terms to poor-paying customers, using a credit agency: the agency pays you upfront for the full amount, but allows the customer to pay them back by installments over time, plus an application fee and interest component (paid by the customer).
  • Improve your invoicing and collection processes: perhaps your invoices are unclear or are sent late. Do they show your bank account details clearly? Do you provide options to pay via credit card, and is this shown on your invoice? Do they show how the amount due, was calculated?
  • Offer incentives for prompt payment, or penalties for late payment: you must be disciplined in refusing the discount, even if your customer pays a day late. You must also be willing to follow-through on penalties, and you must have the right terms in place to charge them any additional late payment penalties; (we will discuss this in the next section when we discuss terms of trade).
  • Be persistent with poor-paying customers: you might be surprised how quickly a customer will pay, simply because you rang them. It works even better, if you visit them.
  • Train your accounts people to be more vigilant with collections: perhaps they need to know why collection is so important, and the negative impact it has on the business. Perhaps they don’t know it is their responsibility, or they don’t know how to call debts in. Or better yet, for a small cost, outsource your debtor management to a specialised credit management organisation that will follow these up on a weekly basis. The cost will be offset by the increased cash flow, resulting from regular and professional follow-up.
  • Refer debts over a certain age to a debt collection agency: I recommend letting your customers know in advance, that this will happen if they default. People know the problems that can happen if their credit rating falls, and that being referred to a debt collection agency will affect their rating. Plus, they know they will probably be liable for hefty collection fees.

How did you find the article?

This is a chapter from my book: Starting a Business, Growing a Business. The Critical Insights No One Tells You About, But Should. 

If you are in business, you know how challenging it can be at times. If you’ve thought about running your own business, you’ve probably heard the odds are against you being successful.

But all is not lost… Get your copy of my book where you will learn more tips to keep you on the path to success!

strategies to improve cash flow

Struggling with cash flow?

If you want help identifying problems in your cash flow and developing ideas to resolve them, you can check out our Cash Flow Management Coaching or simply book a call so we can discuss the specific needs of your business and how to best approach it.

Also, if you are in need of an accountant in Auckland – feel free to avail our services.

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Are you struggling to make your business work?

Insight CA Limited is a team of experienced Auckland-based chartered accountants and business advisors who can help. We’ll give you the power to see what’s really happening in your business, so you can take control and start making progress. Click here to learn more about how we can help you achieve your goals.

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