It is not enough to complete work for a customer and to invoice them. Sometimes there are problems, such as the customer being slow to pay or even going out of business before you can receive payment. This can cause big problems as you are still incurring expenses while not seeing any income generated for it. In order to assist with this common problem, we have provided a few useful tips below.
· Ensure that customer terms of payment are crystal clear. Obtain signed terms and contracts which, where possible, contain guarantees of payment.
· Ensure you fund projects by asking for a payment/deposit up front before work commences.
· Do not let a customer run up a large debt. Set a credit limit and make sure that the customer understands that work will cease if your invoices are not paid.
· Borrowing money from banks can be difficult, so be sure to plan for this in advance.
· If a customer goes bankrupt, (especially with a Limited Company) it will be unlikely that you will see any money for your work, so obtain stage payments and deposits.
· Try not to rely on a single large customer. A larger number of smaller customers ensures continuity of income and spreads the risk.
· Look for work with a recurring element to it, for that repeat business.
· Review competitors prices and the quality of their product or service. Make sure your prices are competitive, and that you provide a better quality product or service.
· Expect that some customers may cease over the next year, so always be looking for new customers, make use of selective advertising, marketing and existing industry contracts.
· Cash advances on customer invoices, sometimes called factoring, should only be used as a last resort. There is no guarantee that this will solve your cash flow problems and is really an expensive form of bank borrowing secured by way of a personal guarantee by you. Seek professional advice before going down this route.
· Where possible, stock should be purchased on a ‘just in time’ basis. The opposite means having your cash tied up in unsold stock, which does not help with cash flow.
If you need any help, or would like further explanation of any of the above, please contact us now.