Do Your Customers Pay On a Timely Basis?

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Do Your Customers Pay On a Timely Basis?

For many business owners, getting customers to pay on a timely basis is or will eventually be a challenge. Cash-flow is one of the largest factors for having a successful business, so it is imperative to have all of your Accounts Receivables as up to date as possible. Here we’ll discuss some options to for you to encourage your customers to pay on time or ahead of schedule if some begin to not pay or drag out their payments.

**One very important note: The longer you wait to collect, the less chance that you will have to reclaim what is rightfully yours. Many companies know this and will string you along in order to take advantage of this. Don’t feel bad about collecting what you are owed.

Early Payment Discount:

Many companies use a discount based on the customer’s ability to pay early. The early payment discount plan is that you will knock of a certain portion of the total amount due if you receive payment within 5-10 days after the date of the invoice. For instance customer is entitled to receive a discount on the bill of two percent (2%) of the face amount of the bill. In order to receive this discount, you must receive full payment of the bill within ten (10) days of our sending the invoice.

Follow-up:

If you have a good customer, who starts to get behind on a payment, make sure to follow-up with your client. They may have forgotten. They may be facing some financial hardships. If this is the case, you may be able to work out a payment plan.

Late Fee:

Some businesses have added a clause to their invoicing methods and inform the customer up front of a penalty for late payments. Inform your customers up front of the allotted time they have to pay without incurring a penalty. For instance, you may have a policy stating that any payments received after said date will be deemed late and subject to a late fee equal to 1.5 percent per month of the outstanding unpaid amount.

Policies and Contracts Written Out:

Have a clear payment policy written our or a contract and be upfront with your customer. An example would be: All payments must be received by ABC Inc. within 20 days of the date of invoice.

Preapproved Credit Card Payments:

You may want to offer your clients the ability to pay with a credit card on file. This practice is becoming more and more common. It will cost you a percentage of the price in credit card fees, but you are virtually guaranteed payments on time. This is also a great strategy to obtain their money today instead of in 30 days or even later, which can be banked for extra interest.

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Collection Agency:

If you are still having problems collecting on past due invoices, you should consider outsourcing your collections to another company. A common practice is to inform clients that after so many days, their invoice will be turned over to a collection agency that will make the customer responsible for all attorney's fees, court costs, and related expenses if the invoice is not paid in a timely manner. Many times, this is enough to inspire them to pay. Be sure to do your research on the collection agency you use. Although, they are the experts at collection, you do not want to be involved with one that uses unscrupulous or illegal business practices and many do.

Factoring:

As a last resort you may want to use a popular method called factoring. Factoring is the process of selling your accounts receivable invoices to a third party who then is in charge of collecting on the invoice. The agents in charge of collecting are called factors.

You should consider factoring when your cash flow starting to decrease substantial and your own Accounts Payable are beginning to build up. Factoring may help you cover the costs to pay wages and pay your creditors.

One good thing about factoring is that it does not tie up assets outside the business and does not involve repayment of debt at some future point in time. The down side of factoring, is that you sell your Accounts receivable for a fraction of their value (assuming they have value and will ever be collected). Factoring is a good way to regenerate positive cash flow.

Conclusion:

Having a well defined financial management plan will help to efficiently and effectively manage the activities related to cash in the company. Review you cash-flow often, know what your accounts receivables department is doing to reduce the pending payments, and discuss options with your sales department to improving the payment at the time of the sale. If you are being up front with the customer at the time of the sale, they are likely to pay on a timely basis.

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Why doing an inventory count is essential to your business

If you are a retailer or manufacturer of physical products, performing inventory is critical to the success of your business. While you may have software in place to track items, nothing takes the place of a physical count. The software doesn’t consider waste of perishable items or theft until you physically make the corrections. Accurate inventory tracking is essential to maintaining good books and calculating the cost of goods sold for your income statement. Unless you take a stock of your inventory you may not be able to understand or be aware that your profit margins are dropping.

Inventory counting also helps you to stay ahead of the power curve on reordering items before you run out of stock. When you know how many of a certain item you have in stock, you will simplify your ordering process and it can often be incorporated into your sales system so that your inventory levels are up-to-date all the time. By maintaining sufficient inventory levels you will not only improve you margins, but also customer satisfaction.

Finally, by tracking your inventory you can reduce your overhead and improve your cash flow. If you have goods sitting around for extended periods of time it may be time to consider marking them down. These goods are not only taking up valuable storage space, but tying up your cash that may be better spent on other items. If you mark it down or donate it, you may be able to get a tax credit out of it as well. Although, it isn’t optimal it will prevent you from tying up your capital in inventory and moving it to either better inventory or other items in the business which are more effective.

Consider a Payroll Service

If your company has employees other than you, payroll is one of the most critical areas of your financial record keeping. It's also the area most commonly botched by small business owners, so get professional advice on how to properly set up and maintain your payroll system.

You might consider using a payroll service to save yourself a lot of administrative time and hassle. A payroll service ensures your government reporting and payroll tax remittances are always accurate and up-to-date. This benefit alone can be well worth the cost of the service, as late-payment penalties for payroll remittances tend to be some of the biggest and most severe penalties that the government levies.

Other advantages of using a payroll serice:

The payroll service is always up to date on the tax code, whether it be changes in Canada Pension Plan rules, revised Employment Insurance guidelines or new tax rates. The payroll service automatically handles the creation of accurate T4 slips for your employees at year-end. With a payroll service, you can offer your employees direct deposit of their paycheque. This is a perk that most employees appreciate.

While there are many good reasons to use a payroll service, you should also be aware that such a service takes all associated government remittances out of your company account each payday, even if those remittances are not actually due for another few weeks. This can create a cash flow problem unless you are prepared for it.

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