A very common mistake for newer business owners is failure to understand the importance of getting paid on time. Honestly, what difference does it really make if a customer pays a couple of weeks late?
Well, let’s take a look at what difference it makes. According to a March 2014 Dun and Bradstreet report, the average business debt is taking 54 days to be paid. If we assume that most businesses operate on 30 day trading terms that means that on average customers are paying their debts 24 days late.
Let’s say that your business operates with $500,000 credit sales annually. If you are running at the average 54 debtor days that means your outstanding credit is around $73,970. But, if your customers were paying in 30 days your outstanding credit would be $41,100, a difference of $32,870.
Now, ask yourself, what could you do with an extra $32,870 in your bank account? Are you are starting to understand why it’s important to get paid on time?
Check out our tips to help you stay on top of your debt and get paid on time.
Invoice disputes can delay payment. Make sure you quote accurately at the beginning of a job and keep your customer informed if things change over the course of the job. Avoid any surprises at the time of invoicing.
Make sure you invoice as soon as a job is completed. If your business has multiple staff members then ensure that there is a system in place so other team members can flag when a job is complete.
Mobile Payment Systems
Tradespeople should take advantage of mobile payment system, which allow you to invoice and take payment on site. Not only will this ensure prompt payment, it also reduces administrative costs.
Early Payment Sweetener
Offer a sweetener for prompt payment, such as a small discount for on time or early payment. A sweetener is preferable to a late payment penalty because it avoids straining your customer relationship.
Late Payment Alerts
Set up your accounting system so that it immediately notifies you when debt exceeds payment terms.
Chase Late Payment
Chasing debt can be tough in a small business where you may be wearing both a sales and a debt collection hat. But it’s important that you pick up the phone if a customer is not paying you. You will probably discover that a couple of polite and gentle reminders will “train” your customer to regularly pay on time.
Please contact us if you need help setting up systems to measure and track debtor days. We are here to help!