Businesses need to maintain positive cash flow if they wish to grow. That’s because when the cash flow rivers runs dry, organisations can struggle with meeting payroll, paying bills and acquiring materials, supplies and other inventory.
Though all small business owners understand the importance of cash flow management, 64 percent of them still struggle with it—primarily due to the fact that they’re forced to wait around for late payments.
According to a recent analysis of 20 million invoices, nearly half of all Net 30 invoices are paid late, while 45% of Net 60 invoices and 35% of Net 90 invoices are as well.
And believe it or not, these organisations are not only waiting on payments from fellow small business owners. Larger Organisations are taking their time sending payments over to small businesses.
While late payments affect all industries, according to the analysis, those in cleaning services, accounting/bookkeeping, web design, landscaping and construction are most likely to be paid late.
Does your small business routinely wait on late payments?
If so, it might be worth re-examining how you begin relationships with new clients, making changes to reduce the likelihood they’ll fall into the habit of paying late in the first place. Here are three ways you can do that:
- Set-Up Direct Debits with your customers.
All our customers at Bidwell Accountancy are signed up to GoCardless on a monthly Direct Debit. This is a cheap way to guarantee your cashflow improves. We have recently implemented this with a local window cleaning company and they have seen their cashflow improve. Gocardless charge a 1% fee up to £2, so the max you will pay to receive payment of an invoice is £2.00
- Always sign a contract.
That way, everyone knows exactly what is expected of them. Contracts are legally binding, so you’re protected in the event things get messy.
- Online Accounting Software.
Moving to an online accounting software means that you can automate your business. Most will give you an option to send out automatic invoice reminders. This means that the accounting software can chase any outstanding invoices owed in the background while you concentrate on running your business
Cash flow problems are pervasive in the business world. But with the right approach to business and the right tools at your disposal, you’re much more likely to avoid them in the first place.
For more information then why not contact the Bidwell Accountancy team on (01908) 380391 to arrange a free consultation on how we can improve your cashflow.