As a young business moving at 100 miles per hour cash flow will be your lifeblood. A healthy cash flow allows you to keep functioning, pay your staff and reach your strategic goals. Late payments stifle growth and can put the entire business at risk; 90% of businesses fail because of poor cash flow. Not having money to meet payroll demands, make payments to suppliers or even utility bills can put an enormous strain on all involved, particularly during times of economic hardship.
In order to save future frustrations and proactively improve your cash flow, we put together 4 areas to make sure that your business gets paid on time.
Do Not Underestimate the Written Agreement
This may seem like an obvious statement, but it’s essential for establishing your terms from the word ‘go’. While verbal agreements are legally binding, they are difficult to enforce – if enforceable at all. Yes, you are probably a millennial and you are challenging the stuffy corporate structure by re-writing the business rule book, but you still need to get paid on time. Regardless of how relaxed your approach to business is, always underpin the importance of cash flow with a watertight written agreement to support any conversations had via any other means.
Prior to any work being carried out it is imperative that a written agreement that covers the work, its costs and the payment procedure is handed to the client. Money is a contentious subject and it is vital that it is clear n the agreement, who is liable for the payment and when it should be made.
Running a profitable business hasn’t been easy in recent years, many businesses have found themselves stretched to the absolute limits – unfortunately resulting in a few financial skeletons in their closet. One way to get a clear picture of a potential client’s financial history is to run a credit check on them. In the heady world of renting real estate, no landlord in his right mind would rent out any property without researching how reliable a potential source of income is, it’s a smart way of assessing the risk attached, along with obtaining a bank reference and supplier references.
Credit checking prospects makes commercial sense when safeguarding your business, particularly if the agreement would make the business ‘top heavy’. If you are still unsure about the prospect, ask for a deposit before the works takes place.
Rethink Your Billing Procedure
Some businesses categorically do not pay invoices until they have had it for 60 days and while this suits their cash flow, you have to consider how payment terms such as these will affect yours. Look to shorten your billing cycle to one that suits your business, many B2C companies expect payments to be made within 14-21 days, and there is no reason why you cannot request the same terms when you are still in infancy.
Make sure that your invoice is sent out promptly; a detailed invoice that includes the client’s name, order number, payment amount and due date and late payment penalty details sent out immediately after the work has been carried out all make it very easy for a client to pay you punctually.
Join a Union
As a young business, knowing where to turn for support when you come up against clients that don’t pay can be a stressful time. Unions can offer a ‘strength in numbers’ approach so that you are not standing alone in your battle, providing invaluable support and guidance for those that have been undermined by large and established clients.
Rohan Silva first addressed the notion of a trade union to champion start-ups back in 2013 and was responsible for initiatives such as Tech City, originally launched to support the tech cluster in East London, but has now grown to support businesses across the country.
No doubt that there will be ups and downs in the financial state of your business throughout the years, but by adopting strict and proactive payment processes in the early days, you will be far better equipped should you encounter the odd reluctant customer!