Cash flow tips: How to urge your customers to pay you on time

Cash flow is the life-blood of a small business. And, much like actual blood flow, we can take cash flow for granted.

How often do businesses find themselves in a situation where funds seem to pour in at one time then dry up the next? Even having regular and consistent customers and clients can still result in fluctuations in income. Combined with having to manage various (and often sporadic) business and tax expenses, it’s no surprise that many small businesses find themselves suddenly cash poor at certain times during a financial year.

No small business owner wants to be in the situation where they struggle to pay bills, employees, or the tax office because income is lacking. Setting up a reliable cash flow process helps, and is the best way to ensure your clients and customers pay you on time.

A solid process starts with knowing your customer. Perform the right due diligence; understand their payment cycle and whether they are known for being reliable with their payments. If you do have customers who fail to pay on-time, ask for an upfront deposit, rely on them for smaller amounts of income, and at the very least take this late payment into account for your own cash flow and future expenses.

This process also should include processes for chasing up late payments. This needs to be timed well, taking into account future expenses and the reliance you have on funds from late paying customers or clients. Do you expect to have to chase them up for delayed payments? What are the avenues for you to do so? Make sure you send your invoices directly to the person who has the authority to pay you. See if you can set up a payment portal or arrange a regular deposit plan.

It’s important not to neglect small customers in this. Minor or one-off payments can often be harder to track in your cash flow planning than regular income. But they build up, and if you do not track and plan for timely payment from these small customers you may find yourself surprised by a sudden loss in cash flow when a number of these smaller customers fail to pay you at the same time.

The last resort comes into play when late payments appear not to be forthcoming despite your best efforts. This is when you will need to move from an invoice to personal contact. Discuss the issue with senior stakeholders. Ultimately, if there remains unwillingness to pay, you should consider contacting a debt collector.

A reliable cash-flow process forms the back-bone of a competent small business. It saves business owners from the pitfalls of constantly being unsure if they will have money in their accounts to meet regular, intermittent, or unforeseen expenses. At the very least, you should have a timeline of your incoming payments around which you can structure expenses. At best, you can take control of incoming cash flow by negotiating payments of different sizes from different customers to be paid at times that suit your cash flow timeline.

Calibre Business Advisory invests more time than most firms into finding solutions for our clients. Contact our business advisors and tax accountants to discover new options for your business in Australia and beyond.

Important Disclaimer: Readers should not act solely on the basis of the material on this page. Items herein are general comments only and do not constitute or convey advice. Legislation and proposals of legislation are also subject to constant change. We therefore recommend that formal advice be sought before acting in any of the areas. This news article is issued as a guide to the readers. Calibre Business Advisory Pty Ltd and its associated entities disclaims any losses that may be incurred as a result of the reader undertaking any action based on this article.