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How to Get Your Customers to Pay Monthly

Any successful business owner knows that having sufficient working capital can be a constant challenge that keeps us on our toes.  It’s a simple fact of life that as a business expands it uses more and more of its cash and working capital.  As more clients or sales come in, cash and capital are usually soaked up by the higher inventory requirements and/or more employees which other expenses and investments grow. 

Most entrepreneurs consider an increase in sales to be an indication that their company’s success is on the increase too.  However, business owners and entrepreneurs who have been in the game know that it’s not that simple.  First of all, you need to focus on profitable sales rather than just chalking up a large turnover.  Profits are vital for business success and cutting margins in order to generate sales will only bring problems.  Secondly, sales don’t actually means success until they turn into money in the bank. 

One of the main causes for failure among SMEs is a failure to focus on the most basic financial ratio – DSO (Day Sales Outstanding).  Business owners or financial managers who don’t understand or appreciate the importance of managing accounts receivable are likely to face cash flow problems that have a serious impact on the financial health of the business. 

An increase in sales will naturally result in an increased level of accounts receivable but it’s vital to keep a close watch on the measure of DSO, particularly if the company is growing quickly.  The goal to aim for is profitable revenue growth rather than financing other businesses.  Lowering credit standards in order to attract more customers or clients may seem like an attractive option but this can be a risky game to play.  Business owners who want to expand and still keep their receivables balance under control would do well to adopt a policy of having all customers pay within 60 days.  Here are some tips on keeping control of your receivables:

  • Establish Standards –We’re living in the Digital Age and the internet makes it easy to obtain detailed information on a prospective customer’s credit status.  A client credit risk assessment is a great way of ensuring that the business relationships you enter into lead to mutual success.
  • Establish Expectations – Make it clear to your clients that you expect to be paid within a certain time frame.  Your invoices should clearly show the date that payment is expected and any late payment fees that are applicable.
  • Make it Easy for the Customer – Make sure your invoices go out regularly and on time and provide your customers with different payment options if possible.  Consideration should be given to automatic pay, direct deposit and electronic services like PayPal and Google Checkout.

In cases where customers neglect to pay despite several reminders, then it’s time to turn to a debt collection agency in order to recover the monies owed to your business.  This needn’t be beyond the financial means of new businesses and SMEs, just look for a collection agency that operates a “no win, no fee” policy.