In my previous article I outlined some key tips on how to spot cash flow issues before they become a serious problem. As useful as I hope that is, it begs the question as to what processes and techniques businesses should employ to manage that in practice. So here is my guide to managing cash flow and credit control on a day to day basis.
Avoid the avoidable
You’ll cut down massively on administration by having a process that begins with clarity for your customers as to your payment terms. Ensure your payment terms and the due date are clear on every invoice. It also helps if you’ve confirmed terms in writing at the outset of your relationship, so that first invoice doesn’t immediately prompt a query and a negotiation that could have been handled earlier. People are far more likely to be reasonable about terms when they want something from you rather than after they have received it and your leverage has gone.
You should also be considering the timing of payments depending on the nature of the work, do they need to be staged? Do you need a certain percentage in advance before commencing? If so this should have been clearly agreed in writing. Too often problems begin to occur because we rely on someone’s memory of a months-old chat that was never adequately confirmed.
One of the most common process mistakes is skipping a credit check on a new customer, especially if it’s someone who you know already personally. Don’t be tempted to overlook this because of someone’s reputation or a fear of how you’ll communicate an issue you find. If there is a genuine concern that a credit check unearths then it’s only going to cause more grief in the long run if it’s raised later in the process. Being honest from the outset sets the tone for all your dealings and ensures customers realise that you are attentive to detail and will continue to be!
Don’t email if you can phone. Don’t phone if you can meet
Having set the right communication style from the outset that needs to be maintained. Good control of your customer relationship plays an important part in your ability to manage cash and this is often overlooked. It genuinely is a team effort. The role your wider team can play is their normal one of great customer service and ensuring your clients are happy. Happy customers pay promptly. But if anyone is less than 100% happy, it’s important to remind your operational staff that getting that information back to your finance team should be part of their internal communication so that they can flag up if that might impact any payments due.
Timeliness is everything, solving a customer’s disgruntlement before their invoices become due can be the key difference in ensuring their payments come in, rather than giving them any ammunition to withhold what’s due.
The tone of your communication will dictate the outcome
Of course, chasing overdue payments is an inevitable part of credit control and an important skill in its own right. Therefore we should treat it like any other specialist skill and ensure that it’s being done by a competent individual with the right manner and knowledge. Often company directors or account managers end up taking this upon themselves when they’re too close to the issue. With directors, because it’s their money at stake, they often let emotion dictate their tone or their choice of words. It’s far better to ensure communication is measured, professional and business-like.
It’s also too easy for a customer to cloud the issue of prompt payment with other questions and historical “rubble” if they deal with the original salesperson. They may decide to use this moment to deflect the matter at hand with anecdotal or even spurious concerns if it buys them time. By allowing someone who wasn’t part of the original sale to deal with credit control it makes this less likely to gain traction.
It’s important that your customer doesn’t get a sense that they’re dealing with someone who is just going through the motions of chasing payments or is too meek to press them to honour their commitements. Ensuring you have someone with the right knowledge and authority will make a difference. If it ever comes to a more difficult discussion about having to charge interest on late payments or even getting a debt collection agency involved then your customer needs to know that’s just a part of your process and will be acted upon, not that you’re just making empty threats in hope.
If you’d like to understand more detail about how you can take control of your cash flow management, I’ve produced a free e-book packed with useful tips for business owners on how to understand the subject and plan better.
I also welcome the chance to talk to business owners about the subject and help in any way I can. I run a Business Finance Club based in Dorset which meets on a monthly basis and is a friendly forum for business owners and accounting professionals to share knowledge. You’d be most welcome to join us.
Alternatively if you’d just like to chat on a 1-1 basis then my door is always open.