Improving Your Cash Flow
3. Have them pay by credit card immediately.
While retail shopkeepers accept credit cards as a matter of course, small businesses that don’t serve “store traffic” tend to do without such a payment facility. If you don’t run a retail business the cost of establishing a credit card payment facility may be beneficial if it gives you the potential to increase the speed by which clients pay you.
Run a cost/benefit analysis with your financial planner. Make an approximate determination of how much of your receivables you would need to have clients pay by credit card to make adding this payment facility worth your while. Then, contact clients and tell them you’re taking an informal poll to determine if they would be interested in paying by credit card. Remind them that they could earn frequent flyer miles or other credit card perks for their businesses or themselves.
4. Offer discounts to customers who pay their bills quickly.
Everybody recognizes that store discounts encourage shoppers to “buy now”. The offer of a discount may work with some of your customers, too. If you have a customer who has been negligent in paying you on time, consider offering a discount of some sort if he pays you promptly and consistently. Here’s one way to consider structuring your offer: Say you have a customer whom you bill monthly. You could tell her that for every three months that she pays on time consecutively you will discount her next invoice by X%.
5. Make sure you know who your late paying customers are and if
they persist in their lateness have them go on cash on delivery only.
For those late paying customers who didn’t accept your previous offers (to provide you with a deposit first, to pay by credit card or take you up on a bid to pay on time and earn a discounted invoice three times a year), you have one option left. Inform them that you will put them on a cash-on-delivery billing basis.
If they do not accept any of these proposals, you need to reassess whether you can afford to continue doing business with them. If a client of mine had such an experience with a customer of his, I’d question whether his customer’s business was likely to remain viable for much longer and warn my client to be careful when extending credit to this customer.
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Guy McPhail, CFA, CFP, is president of Zdenek Financial Planning, LLC.www.zdenek.com
