So, you read ‘Four ways to fix your firm’s cashflow crisis’ and decided the ‘quick fix’ solution just isn’t going to cut it this time around.
Your cash flow headache has become a migraine and you are sick of chasing your consistently late-paying customers for the cash they owe you.
We can help. Here are 4 top tips for solving your cash flow problems for good, giving you and your business long term, easy access to cash when you really need it.
1
Factoring is an increasingly popular way of getting cash in the door quickly – it allows you to ‘sell’ your invoices to a specialist company in exchange for advance payments.
Positives:
- Releases money owed to you quickly – sometimes up to 90% of invoices within 24 hours, the rest will come later
- Saves time - eliminates internal invoice ledger management, (factoring companies provide a full service including monthly statements)
o You can ‘trial’ it - many factors now offer trial periods, allowing you to witness whether or not is a suitable solution for your company.
Negatives:
- It is not free – there is a fee associated with this service.
Get a factoring quote
Do your research – before you bring on a new customer make sure you are versed in their history of reliability.
Equifax, D&B and Experian are UK leading credit reporting agencies who have in-depth, up to date data on UK companies’ financial and operational activities. Look them up and perform due diligence on your potential customer and, if possible, ask those already working with this customer what they are like.
Positives:
- It’s prevention – not just a cure. Your cash flow problems are likely to diminish rapidly if your book of clients are diligent payers.
Negatives:
- Not everyone has the luxury of ‘knocking back’ potential customers – to get kick-started some business need any business they can get
- How do you know you are not making a mistake? Information on serial late payers is publicly available however its accuracy is not proven.
In ‘Four ways to fix your firm’s cashflow crisis’, we talked about offering your clients a discount in return for prompt (within 7 days) payment. If you are forced to do this month in, month out, you are likely to have an administration nightmare on your hands – not to mention the fact that you are encouraging your clients to consistently hold off their payments to you until they receive the “we really need you to pay us quickly” phone call.
An effective way to tackle this long term is to write in ‘early payment benefits’ into your customers’ contracts. For example;
“If you pay your invoice within 7 days of issue you will be entitled to a 5% reduction on the total value of the invoice. If payment comes after 7 days of issue full payment is required”
Positives:
- You will encourage your customers to pay you promptly each month
- Time chasing customers for payment is likely to be slashed.
Negatives:
- It will cost you – imagine if all your customers take advantage of a ‘5% discount’?
- What happens if your customers choose not to take advantage of the discount? You will be stuck chasing them all for payment once again.
It might sound obvious but it will have an impact. If you get your invoices out the door as soon as possible you are giving yourself the best possible chance of collecting payments sooner rather than later.
Positives:
- It is free
Negatives:
- Not a guaranteed solution – you are still likely to have to chase customers for payment
- Doesn’t put you in control – your customers still dictate when you get paid
- You may find yourself putting off ‘high-priority’ tasks just so you can send your invoices out by a certain date