Small Business Bookkeeping Deadly Sin #4: Allowing Customers to Buy on Credit and Then Not Following UpKelly
Don’t commit this deadly sin because it could result in you waiting weeks to be paid! Make sure that you are getting paid for your work ASAP by taking payment the same time that the transaction occurs. This happens much too often, so follow these ideas to get paid quickly
1. You’re not a bank, so don’t give credit if you don’t have to
You a basically giving your customers an interest free loan whenever you extend them credit! This is not good, especially as you yourself might be paying interest whilst you wait for the money to come through. It can also mean that your cash supply dwindles to a dangerously low amount.
2. Know your customers
In some circumstances, it is inevitable that you will offer credit to certain customers. The best way to ensure that you get paid quicker is to develop a good relationship with them. Also for those new customers, it pays to do a reference check to determine whether they generally make timely payments.
3. Set up your terms and conditions for payment at the start.
Make sure everyone understands the rules that determine how you do business together. With new clients, establish these at the beginning of the partnership so that everyone knows what the expectations are.
4. Get your invoices out on time
It is crucial that you send out your invoices as soon as possible. This is essentially your formal record that money is owed to you for work that you have done. As it is the official record, it needs to be professional and contains your business name and ABN. It needs to be VERY clear when payment is due.
5. Make it easy for customers to pay you
Be open to accepting a range of payments, so that customers find it easy to pay you and are therefore more likely to do it quickly.
6. Be professional and polite
It is often underestimated how important being professional and polite can be. Look at the invoice options and templates available on your bookkeeping software and see if you can personalise it for your business. This professional touch can make a huge improvement to the look of your invoices and make it more likely for your customers to take it seriously. However don’t forget to add a polite comment, for example, “We thank you for doing business with us at [enter business name here]”.
7. Keep your financial records organised
Regularly look over your payments and invoices, both those that are still outstanding and have been paid. It is good practice to be able to refer back to them. The best way to for you to easily see any outstanding accounts and understand when customers normally pay you, is to use invoicing software.
8. Follow Up
Sometimes, even after following all the steps, some customer’s payments will still be overdue. This is often inevitable but does not mean that there is nothing that you can do. Start your follow up process immediately. Many business owners send letters, emails and make phone calls to warn their customers that their payment is overdue and to explain the consequences if they do not pay soon. The steps you take will depend on the rules you determined at the beginning of the relationship and the process you have established as a business.
As you can see it does not take too much effort to ensure that you get paid quicker. This helps you have a clearer pictures of where your business stands and can also improve the levels of cash you have.
Click here to read the introduction to “The 9 Deadly Small Business Bookkeeping Sins… And How You Can Avoid Them”
Keep your eyes open for Deadly Sin # 5