You can have the best business in the world, but if the money isn’t coming in then you’ll always feel broke. These seven tips for tradies can help you to improve the cash flow of your business.
Cash flow is critical for any business, but it’s hardest for small businesses to suffer a cash crunch because there are fewer options to fall back on. It’s no wonder cash flow is the top reason for small businesses going bust, according to ASIC insolvency data. “Inadequate cash flow or high cash use” was given as the top reason for failure in 44% of reports.
So how can you improve your own cash flow and stay afloat? Here are some smart tips to avoid a cash crisis.
Set Clear Payment Terms
Be very clear when payment is due. If people don’t have a clear deadline to settle an invoice, many won’t bother. Late payments are a huge issue in Australia, and all businesses are affected by it. Even previously reliable customers may fail to pay on time. Each time you invoice, clearly include your payment terms, which should include your debt collection policies.
Automate Your Invoicing
Moving your invoicing from paper bills and receipts to a digital version will save you time and stress. Business accounting software does all the legwork for you, as well as cut down on costly errors. It can send out invoices as soon as a job is done and chase up customers with automatic reminders. It can also alert you when payments arrive and instantly update your accounts for you.
After a long day of work, the last thing you want to do is sit down at your desk and start doing paperwork. But every day you put off sending an invoice is another day you won’t get paid. If you have time between jobs during the day, use a mobile device and fix up your accounts then and there. Most invoicing software has a mobile version. You can also use the time to scan and digitise your receipts so they’re all in order when it’s time to file your taxes.
Make It Easy for Your Customers to Pay
Allowing as many payment terms as possible makes it easier for customers to pay you. Cash, cheque, credit card, bank transfer – all these methods are popular with different people but usage is shifting from paper to electronic. According to Australian Payments Clearing Association, direct credits and direct debits are growing by about 10% each year. Mobile EFTPOS handsets are also a good idea because then customers can pay you on the spot.
Incentivise Early Payment
If you offer a discount to customers who pay early, it can encourage them to pay more promptly, or at least on time. It’s also wise to tighten payment terms for repeat late payers. There’s no reason you can’t set a 15 or 21-day payment window, rather than the standard 28 or 30 days.
Have a Debt Collection Policy
In the worst-case scenario, you may need to take firmer action to get paid. This may start with a phone call or letter of final demand, and escalate to hiring a debt collection agency or pursuing legal action. Of course it’s much better not to get to this point, because it will cost you time and money. But having a strict policy, and letting customers know about it, will make them realise you’re serious about payment.
Keep Your Own Costs Down
Doing $1000 worth of work isn’t like getting a blank cheque to spend $1000. You might not receive the money for quite some time (if at all), and some of it belongs to the taxman. If you run out of cash you’ll be forced to borrow – which could be a business loan, an overdraft or credit card debt – and this means you’ll pay interest. It’s one thing to borrow to expand your business – for example, to buy equipment – but borrowing because you can’t properly manage your money is a fast track to going bust.
If you can get on top of your cash flow, it will give you more time to carry out your actual business and enjoy your life.