Managing your cash flow for new and existing customers
We are fast approaching one of the most challenging times of the year for small businesses in terms of cash flow – Christmas!
In order to keep on top of finances, small businesses should start planning now to ensure they do not end up waiting until sometime in February to get paid for work completed in November.
These are a few tips and guidelines not only the for Christmas cash flow crunch, but also to get you ready for the new year and moving forward:
1. PLAN AND BUDGET
Prepare a detailed cash flow plan. Your budget should take into account your complete financial position, so it is important to make a list of all your expenses. We suggest you speak to your financial adviser or accountant who can provide some useful tips and tools to get you started.
In addition, the ATO has some great tips on their website under “Starting and running your small business”. www.ato.gov.au/business.
2. SEND INVOICES EARLY
This is vital in any small business. You won’t get paid unless the invoice is issued and sent. Don’t wait till the months end. Make sure your payment terms are clearly stated on your invoices.
Standard credit terms are often 14, 21 or even 30 days. If you do provide credit, it is advisable to review payment terms regularly to help manage your cash flow.
3. DISCOUNT FOR EARLY PAYMENT
Christmas is a time of giving, so why not offer a discount if the invoice is paid on time or prior to Christmas? This will save you time chasing delinquent debts in the new year.
4. PAYMENT PLANS
Work with your debtors and extend the time to repay the debt over a reasonable time. If this is an option you chose, then you should document the arrangement formally.
Ensure that you enter into a formal agreement and that the Agreement incorporates the following:
• The original debt
• Date of invoice
• Invoice number
• Due date of the payments
• Frequency of the payment i.e. weekly, fortnightly, monthly
• Offer direct debit /Bpay /credit card details for ease of payment
• If there is a default in any installment, then the full amount is due and payable immediately
• If stated in your terms and conditions, provide for the ongoing accrual of interest if applicable
*For a small fee, we can assist you by drafting an installment plan proposal and the agreement for you.
5. RECOVERY OF DEBTS
All has failed, and communication has ceased. Invoices are now 90 days and over. You need to take action.
A letter of demand allows you to formally document and reinforce the details of overdue invoices. It also enables you to outline the actions that will be taken if payment is not made by a specific date.
If the debtor does not respond to your demands, its time to refer to them over to a debt collection agency.
DSA Collections specialises in helping you to recover your delinquent business, and personal debts.
We work with you, merging seamlessly with your organisation to ensure that your debts are collected in a timely and efficient manner. DSA Collections runs on a Commission Basis, ensuring that you only pay on a successful outcome.
6. LEGAL ACTION
If we do not receive a response to our letters of demand, or if the debtor refuses to repay the debt, we can begin to take steps to recover the debt via the Courts and/or VCAT.
Before proceeding with any legal action, we will discuss the costs, procedures with you and obtain your authority prior to commencing any action.
7. RISK AND CREDIT TERMS FOR NEW CUSTOMERS
Offering credit increases your risk of not being paid or being paid late, so it is important to perform credit checks vigorously on all new clients and those late payers. You should also consider obtaining a director’s guarantee, so that if a company gets into financial difficulty, you can pursue the directors personally for the debt.
A complete credit application form should include the following:
• Full name, address and contact details of the applicant
• ABN, ACN, business details, details for all the directors, partners or owners (if a business) and any relevant trust details
• A minimum of three supplier references
• A signature confirming, they have read and understand your terms and conditions and agree to abide by them
• A written permission to conduct a credit check
DSA Collections will provide a tailored credit application form for your business. All you need to do is have your clients compete the form and return it to us. We will then compile a comprehensive credit report for you.
We recommend that you advise your client in writing of any decision, whether accepted or declined. This will also provide you with the opportunity to provide a limit on the amount of the credit provided.
When you have decided to progress the application and provide credit to your client, you should advise them in writing of the following:
• The Credit limit
• The Credit terms, and
• The default or penalty terms and conditions
DSA Collections can assist in drafting your terms and conditions or we can review your current ones so as to ensure they are appropriate and up to date.