Do you have a debt collection plan for your business?
The first couple of months of the year are traditionally tough from a cash flow perspective. This can happen not only because business is slower, but also because invoicing can sometimes be set aside during the festive season, and all the fees that should have been paid in January won’t be paid until February or later. We have outlined some procedures you can put in place to form a debt collection plan for your business.
1. If you provide a product or service that requires you to pay for something in order to make the sale, ask for that amount immediately.
2. You could offer a discount off the total amount if the amount is paid up front. This encourages the customer to pay right away, and again, it will prevent you from being out of pocket.
3. Start offering 14 day payment terms rather than 30 day payment terms. Hopefully people will pay quicker, and if they do ask for an extension, only extend to 30 days.
4. Many businesses fall into the trap of letting the customer dictate the payment terms. The problem here is that most small businesses can’t afford to provide credit for a long period of time. If you are one of these businesses, you need to be stricter when it comes to payment plans.
5. Another way to encourage your customers to pay sooner is to charge a late fee or interest on the amount. Be careful with this; don’t let it become a hidden fee as this isn’t fair on the customer. Be honest and up front about your payment terms from the beginning.
6. Issue invoices at the time of completion of the job, rather than at the end of every month. This means that the customer receives the invoice sooner, and it saves you time at the end of the month invoicing every client.
7. Make contact with the customers who owe you money, preferably via telephone. No one likes doing this, but customers are more likely to pay their debts to the suppliers who are constantly contacting them.
8. Many businesses struggle to pay their BAS in February as a result of not having a debt collection plan in place. A good way to avoid this is to put a little money aside before the Christmas break and make sure there is enough there by the end of the year to cover your BAS. To ensure you have enough to cover the BAS you should transfer the PAYG each week, along with the net GST receipts and a third of your quarterly tax installments each month.
A debt collection plan is a must for any business. By having a debt collection plan in place you will avoid or minimise struggling through quieter months.