Cash Flow Management: Best ways to avoid bad debt
For small business, cash flow is one of the most overlooked areas of operating a business, yet it is one of the key reasons why the majority of SMEs fail in Australia. Whilst many businesses manage and implement strategies to help maintain a strong cash flow position, there is still a large majority who fail to implement the most basic strategies to help them get paid faster – essentially setting themselves up for failure.
So what can you do to improve cash flow and avoid becoming another statistic in Australia?
Well……there’s actually a number of areas that you can look at immediately to avoid bad debt, however it’s important to perhaps take a step back and think about how you’re currently collecting unpaid or overdue invoices – as the answers are often right in front of you.
Based on a number of surveys from Australian small business owners, a large proportion of their time was invested in chasing payments from customers rather than working to grow their business operations. Whilst many thought they had effective collection strategies in place, the time spent chasing these bad debts from customers said otherwise. The more time you spend chasing payments, the more time you’re away from driving your business forward, so no matter what industry you operate in, it’s important to make sure you have the right strategies and processes in place.
Here we outline a few simple, yet effective ways to help you avoid late payments and bad debt.
1. Prompt invoicing and precise payment terms
This may seem obvious, but you’ll be pleasantly surprised! The earlier you send the invoice to your customer, generally the earlier you’ll get paid. It is important to have clear payment terms on your invoice and make this obvious to the recipient. Some customers may delay payment in order to facilitate their own cash flow at the cost of your business, so if you’re using accounting software such as Xero or MYOB, you may want to set up email reminders to reduce the possibility of this occurring.
2. Expand your payment options
If you are looking at ways to improve your cash flow in your business, you could look at multiple payment options to help facilitate this. Giving your clients and customers a wide variety of payment platforms is a great way to offer more convenient options. This could include accepting credit card, debit cards, bank transfer, PayPal, Apple Pay or even mobile payment options.
3. Adopt technology
Although a large majority of businesses use some form of accounting or invoicing software, there is still a considerable number of businesses still managing things manually day to day. For some, adopting or onboarding technology is overwhelming, as it requires some form of training to understand the application, however using such technology would ultimately free up a significantly amount of your time – leaving you with more time to build and grow your business. And don’t forget, you don’t necessarily need to do this all yourself, as you can always outsource this function to your accountant – so there shouldn’t really be any barriers to onboarding technology to improve efficiencies within your business processes.
4. Continuously monitor and maintain accounts
Being aware of your current financial situation at all times will ultimately help you manage your business’s cash flow more effectively. It also allows you to anticipate unexpected issues in the future by having a finger on the pulse of your operating net position. Nowadays, with a large majority of small businesses use accounting software, it allows you to generate reports like profit and loss and balance sheet statements quickly to help you understand your immediate and future situation. So if you’re aware of your current sales and expenses on a regular basis, you will be much better prepared to navigate through operational issues like cash flow problems moving forward.
5. Pick up the phone
Giving a personal and human touch to your business is a great way to ensure that you stay ahead of any cash flow troubles. If you have received little to no response after sending invoices and follow up emails, try picking up the phone and giving them a call. There’s obviously different ways to approach this depending on your relationship, however it could be a simple friendly reminder call or perhaps giving them a call about something else but subtly adding this into the agenda.
Generally, majority of the time people have either just simply forgotten about the invoice or its still sitting with the accounts department, so again, if there has been some radio silence, picking up the phone to chase up to get an update can be an effective way to speed up payments and remove any possibility of bad debt accruing.
Are you still struggling to get paid on time?
Staying on top of your cash flow is very important in ensuring the growth and success of your business. It’s important to look out for your own business’s interest first and foremost, so if you feel you have exhausted all possible avenues to recovering unpaid invoices, it might be time to speak to a debt collection agency.
A professional collection company specialises in recovering unpaid invoices, and more importantly, do so whilst maintaining your current business relationships. This leaves you to focus on growing your business, while leaving the specialists do what they are good at – collecting debt.
If you would like an obligation free debt assessment, please fill out the free web appraisal form below or call us on 1300 136 271.