Customers dragging their feet?
...It's time to dig your heels in!
We talk about cash flow all the time at RIFT. It's the heartbeat of your business, and you've got to take good care of it to stay healthy. A lot of this comes down to the payment terms you're setting for your customers.
There's no point firing off invoices in all directions with no clue when the money's coming in. At the same time, if you set your terms too tightly you might quickly find yourself with no one willing to commit to them. Like everything else in business, there's a balance to strike. Here are a few pointers to keep the cash flowing.
Make sure your customers understand the terms you're setting. Confusion over a payment deadline can cripple your cash flow and starve your business. Don't assume there's a standard policy that everyone knows about. You might think 30-day payment terms are universal, but if your customer's expecting 3 months to pay you've got a serious problem coming up in a few weeks. In fact, your best bet is not even to accept the work until you've set your payment terms in stone.
This seems completely obvious, but you'd be surprised how often it's missed. When you send an invoice, don't forget to put the payment due date clearly on it. It doesn't matter if you've spoken to the customer yourself, when the invoice goes out to the person who'll actually authorise the payment, it needs to have all the information on it.
Setting good payment terms for reliable customers can be a great way to keep them coming back. Prompt payment discounts don't have to be massive to be appreciated. At the same time, don't forget you've got rights. The law says you can charge interest on late payments, and even reclaim debt collection fees if it comes to it.
Sadly, it does sometimes happen that a customer gets difficult. The bigger the client, the more likely they are to try and throw their weight around when dealing with small business suppliers. Depending on how much you're relying on their business, you might be prepared to be more or less flexible. Either way, though, you need a plan for when this happens. Choose your words carefully, but remember: if they do it to you once and you put your foot down, you've sent a message. If they do it twice and you don't, that message is very different.
Always remember that your suppliers have payment terms of their own. If you're counting on getting cash in from Peter to pay Paul, then you'd better be sure Peter's money comes in before Paul calls the debt collectors. Where possible, always set your terms so that you're getting paid before the bills you're running up fall due. If you absolutely can't, then make sure you've got a some kind of finance set up to cover them while you wait to be paid.
Even when you've established payment terms with your customers you might get wrong-footed occasionally. A lot of businesses have their own set terms for dealing with suppliers. If yours aren't the same as theirs, you've got a conflict. Unless you want their system to overrule yours, don't hesitate to challenge their terms before accepting the order.
A lot of small business owners feels awkward about setting payment terms, or causing a fuss when they're ignored. There's an art to knowing when to dig your heels in and when to step a little more lightly. You'll decide for yourself where the best balance lies for your business, but always talk to us if you need help setting the rules for customers. While you're out there testing those waters, listen out for more Voices from the RIFT...