Improve cash flow in your service business
Set clear expectations from the start
Probably the most important tip we can give you is, be clear about your expectations from the get-go. If you feel uncomfortable talking about money and prompt payments, we are sorry to say, you are going to have to tackle that fear head-on. Or face having much tougher conversations when you’re not getting paid!
The good news is, once you get in the habit of being explicit about your expectations it becomes much easier.
First you need to work out what your payment terms need to be. Then ensure that your terms and conditions (T&Cs), invoices and even the conversations you have with potential clients cover that point consistently.
Which leads us nicely on to your T&Cs. Have them in place and use them consistently with every client. There are lots of systems out there that allow you to have an agreements signed and electronically. Many of them offer generous free trials and even commitment free, pay-as-you-go options for using them thereafter. This can be perfect if you don’t need to buy a certain number of credits each month.
Two that are worth a look are Signable and Docusign although there are lots more so we’d recommend you research what option is best for you. The added advantage of these systems is that they enhance your professionalism whilst saving you time and effort or printing, posting, and tracking the return of agreements.
Make it easy to get paid
This might sound controversial but we believe that most humans are fundamentally lazy. That means you need to make it really easy to get paid on time, or it probably won’t happen. For retail businesses, this is relatively easy. After all, people expect to pay for their goods at the point of sale.
However, service-based businesses can find this a little trickier. But whether you expect a percentage up-front, payment in advance or payment on completion, what really makes the difference is the payment options you give to your clients.
These days it’s really easy to set up card payment options and even direct debits.
A system we recommend to many clients is GoCardless. Although you pay a small fee for using the system, you are likely to save more by not having to chase late payments and reconcile invoices. We often find customers like it too as they don’t have to remember to set up bank payments.
You can also use systems such as PayPal, Stripe, WorldPay or even BACS. Like the online signing platforms, it’s important to do your own research before choosing but if you need to understand how a potential platform works with your accounting software, we can help with that.
In these post pandemic days, we advise against cash or cheque payments (yes – some people do still use cheques!). You’ll have to collect and bank cash payments whilst cheques usually require an authorisation process by your client which, with many people working remotely, is the perfect storm for late payments!
Act promptly and decisively
If you find yourself needing to chase late payments, act promptly and decisively. If your T&Cs are clear, your client shouldn’t be surprised at the action you take. Plus acting swiftly the first time reduces the likelihood of them paying you late again in the future.
Whether you are a sole trader or have a team, make sure you have a process in place for dealing with late payments.
For example, cloud accounting packages like Xero, Sage and QuickBooks allow you to set automatic reminders. Don’t be afraid to set your system to issue a reminder 1,2 or 3 days after the payment due date, followed by regular reminders thereafter.
Picking up the phone to chase a payment might feel uncomfortable but you can’t leave it all to the tech! It doesn’t need to be a confrontational call – or at least the first one doesn’t. SImply contact the appropriate person and confirm:
- They have received the invoice
- They are aware of the payment terms and
- The date by which you will receive the payment.
If all else fails, you may need to take further action for non-payment. This could be passing the debt to an agency to recover the debt on your behalf, for a fee. Or you might need to take legal action.
Either way, both of these routes are likely to harm the relationship with your client so should be a last resort. That said, if they aren’t happy to pay you on time, they’re probably not your ideal client anyway.
How can Accountancy Solutions help you get paid on time?
When you outsource your account management to Accountancy Solutions, we take care of lots of these steps for you.
For example, if you don’t have T&Cs in place, we can help you work out what your payments terms should be in order to support your business cash flow, as well as help you plan what your default actions will be for late payers.
When setting up your accounting system, we’ll make sure the invoice reminders are set up and aligned with your T&Cs and we can even chase late payments on your behalf.
With accountancy support packages from just £250 per month, f you’d like to know more about how Accountancy Solutions can help you get paid on time, every time, contact firstname.lastname@example.org or phone 01962 462007