One of the most important aspects of a small business is managing debt. You need to make sure you have a healthy cash flow and up to date debt collection plan. Read on to find out how a debt collection plan can help your business avoid debt.
Get out of Debt
If your business sells products that you need to pay for up front, encourage your customers to pay you up front so you won’t be out of pocket. You could ask for a part payment before they receive the finished product, and then the remaining amount is due once delivery has occurred. You could also offer a small discount or incentive if the total amount is paid in full.
You need to make sure that you are the one dictating the payment terms, not your customers. Consider offering a 14 day account rather than the traditional 30 day account, if they then ask for an extension; only extend to 30 days and no longer. You may even want to enforce a late fee that is payable when your customers are late on their payments. You do need to be careful with this though, and ensure it doesn’t become a hidden fee. Be honest and firm and hopefully this will encourage a quicker payment turnaround.
Another helpful tip is to issue invoices on completion of each job rather than at the end of every month. This means that the customer receives the invoice sooner and it saves you time at the end of the month invoicing every client.
Be sure to make contact with customers who owe you money. Customers are more likely to pay the business that gives them a call as opposed to the company who remains silent. If you have the facilities, offer your clients the option to pay over the phone there and then.
Some businesses find themselves tight on cash when their BAS payment comes around every quarter. To avoid this, start putting away a little each week specifically for this payment. That way, it won’t affect your cash flow when the time does come to make the payment. To ensure you have enough to cover the BAS you should transfer the PAYG each week, along with the net GST receipts and a third of your quarterly tax installments each month.
A debt collection plan is a must for any business. By having a debt collection plan in place you will avoid or minimise struggling through the quieter months.
If you need help with your debt collection plan our experienced Accountants and Lawyers are happy to help. Call us today on 02 9223 9166 or submit an online enquiry.
