Small Business Accounting – Get Your Cash in on Time

On time – to keep the cash flowing through the business

We all know that cash is the lifeblood of the business. A reservoir of cash is made up of positive bank account balances, physical cash plus any short-term top-up facilities such as agreed overdraft facilities. It is vital that the reservoir does not run dry.

The main cash flow into the reservoir comes from amounts received from customers. Outflows are mainly as payments to suppliers and employees and business operating expenses. These outflows feed into products or services that are eventually sold to customers and the cycle starts again.

So on time receipt from customers keeps the reservoir topped up.

On time – to keep the customer financial relationship clean and transparent

Credit management is just easier when then things are up to date and understandable. Making sure cash is received when promised; confronting issues as they arise both assist in having a quality working relationship with a customer and eliminating ambiguity. It also keeps admin costs down.

On time – to keep the bank manager off your back!

To stay in executive control of the business, the bank manager needs to be kept at arms length. Emergency requests for temporary finance when the reservoir runs dry; hands influence and maybe control to the bank. So making sure that customers pay on time and managing the cash flow is imperative.

On time – to keep business options open

Good cash flow allows businesses to decide their future. To invest, start new projects, to drive growth all require controlled and managed sources of cash flow. As an important part of that cash flow is on time receipts from customers is critical.

Four good reasons therefore for getting paid on time. If you can use direct debit so much the better but if not here are seven tips to help get paid on time.

  1. Terms of Trade
    Agree your terms of trade with your customers and make sure those terms are shown clearly on your sales invoices and documents.

  2. Accurate sales invoices
    Make sure that the information on the invoice is correct both in terms of description of the service or product sold and the value being charged. If the customer has provided a Purchase Order reference, make sure that that is visible.

  3. Delivery of invoice
    Whether you post or use electronic delivery make sure you can confirm that the customer has received the invoice. Where possible direct to a named person who can approve or pass for payment.

  4. Use a remittance advice
    Make it easy for your customer to pay you by having a remittance advice attached to the Invoice showing relevant bank details and accepted methods of payment.

  5. Review the debtors
    Regularly review your aged debtor analysis. Know when you expect to be paid and know who is late.

  6. Chase
    Actively chase payment when overdue. Send statements to remind customers of the situation. Use telephone and email contact to follow progress. Remember to take short notes of conversations and promises and if appropriate confirm those notes back to the customer.

  7. Commit the effort
    Above all commit sufficient resources and time to make sure cash from your customers flows.

Finally, you have given good service or delivered a good product, you have transferred value to your customer so you have every right to be paid. So get in to habit of collecting what is owed.

Online accounting software from Liberty AccountsPaul Taylor is Finance Director for Liberty Accounts.

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