Are you constantly chasing your customers for payment?
Chasing for payment can be awkward and time consuming. Whether it’s a brand new customer that you’re trying to build a relationship with, or a long standing customer that you speak to on a regular basis, it’s never nice having to prompt anyone to pay you.
Even when you do chase for payment and your customer perhaps apologises and promises to chase up payment with their accounts department, there is still no guarantee that your customer will pay you when they say they will – if at all. So, surely you can be forgiven for prioritising other tasks over chasing for payment?
Here, we look at the main reasons why chasing for payment should always be a top priority and why it doesn’t have to be as awkward as you think.
1. You have your own cash flow to think about
It might sound obvious, but your own cash flow is a big deal. Without relying on loans, investments or your own savings, the money that you invoice your customers for is the life-blood of your business.
Having a good cash flow relies on accurate forecasts of what income you will receive. Unfortunately an invoice is not the same thing as income and whilst your projections should feature what you are charging your customers for, you must also bear in mind the payment terms you have set out and how long it will actually take for the invoiced money to land in your bank account.
On the flipside, if in turn you begin to find it difficult to pay your suppliers on time, you may find that they cancel any credit agreements they had with you or become unwilling to provide you with any goods at all. This could make it impossible for you fulfil your own customer requirements, cutting off your most vital income stream by stopping you from making money from those that would be able to pay you.
Simply put, if you are paying more money out than is coming in, you have negative cash flow and eventually, your cash will run out.
2. You have your own responsibilities and liabilities
Without being paid you will eventually struggle to pay for critical resources, including your suppliers, your staff, your utilities, your taxes and your own wages. If this isn’t enough to worry about, consider when there are quiet months where there are gaps between being paid or where you maybe even lose a customer. You will still have the same outgoings that need paying and you can guarantee that if you don’t pay them, you will at the very least be chased for the money that you owe.
Further down the line, you may even be sued for non-payment. If your customers aren’t paying you, causing you to fall behind on your own payments, how are you going to afford to defend a legal claim? You might be able to borrow money, sell assets or even re-mortgage but it’s also possible that if your business relies on projected income that never materialises, you could very quickly find yourself facing insolvency.
Signs that this is happening could be as simple as finding that your business’ credit rating has become ‘poor’ or realising that you’re hitting your overdraft limits on a regular basis. The Insolvency Checklist from The Liquidation Advice Centre provides other useful key indicators that your business is at risk of insolvency.
3. You have an easy option for chasing payment
Balancing the books or even just keeping on top of who has paid you and who hasn’t can be a headache for businesses, regardless of their size. For those on the smaller side, it’s far easier to take a customer at their word rather than have to physically keep checking up on how much they owe you.
However, there is an easy option.
You can create customisable invoices in seconds, schedule recurring invoices and set up automatic payment reminders with Clear Books accounting software.
Specifically designed with saving time for small businesses in mind, Clear Books lets you manage your accounts in the cloud. It is clear and simple to use, making balancing your books, creating financial reports and chasing payments without awkward telephone conversations quick and easy, wherever you are.
Managing okay at the minute?
If you’re managing your entire accounting on your own for now, that’s great! However, if you are planning on growing your business you may find that the more you take on the harder it becomes to manage ‘the little things’ like chasing for payments on a regular basis. The same can be said for receiving help from a book keeper, despite common myths around why you might not need one. For more information about how a book keeper could be of benefit to you, see our article on ‘5 Bookkeeping Myths From the IAB’.
The Liquidation Advice Centre
For more help and support with liquidation and insolvency, visit theliquidationadvicecentre.co.uk
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