8 expert tips on how to make sure you're paid on time

We all know that cash flow, or the lack thereof, is far-and-away the biggest killer of small business. Roughly 60% of Australian small businesses fold within the first two years due to cash flow problems.

So, what can you do to make sure your business doesn’t become a part of that statistic?

1. Understand how you make money

Firstly, understand how your business generates income. Unless you’re running a charity, you’re in it for the money. Yes, you might also get to spend your days living your passion and enjoying a flexible lifestyle, but cash is currency and unfortunately good vibes and “exposure” won’t pay your electricity bill.

Now get super familiar with your revenue streams and figure out how much of each product or service you need to sell each day, week, month, quarter and year to make your profit goal.

‘What if I don’t have a profit goal?’, I hear you say. Time to get one! Sit down and think about how much profit you need to make in a year to make it worth your while to stay in business. A good place to start is to think about how much you’d be making if you were otherwise employed, then factor in the enormous risk you’re taking by running your own show. You need to make a profit, or you’ll end up resenting your business.

2. Figure out your cash flow cycle

Once you know how your business is making money, look at the total time in days between landing a new gig and converting that into cold hard cash.

Most of us spend so much time looking at marketing funnels and how much it costs us to convert a prospect into a lead into a client, but for some reason we stop there. Understanding what happens next is fundamental to managing your business’ cash flow.

Have you measured how long it takes you to convert your work-in-progress into an invoice? Do you invoice weekly, fortnightly, monthly, at intervals, on events, on completion? Do you take deposits? What system are you using to remind yourself to invoice regularly? Do you have corporate customers, whose Accounts Receivable rules mean you don’t get paid for 60 or 90 days? Can you negotiate?

When it comes to cash flow, consistency is key, so set up a schedule and stick to it. And most importantly, make sure your incoming cash flow aligns with your outgoing cash flow – many businesses who crash and burn are profitable on paper but run out of cash. Aligning your cash flow cycles is critical to ensuring that this doesn’t happen to you.

ALSO READ: Bootstrapping: top 10 tips to save you time and money when setting up your business

3. Offer payment incentives

Once you’ve issued your invoice, how long does it take your client to pay you?

Take a long hard look at your receivables and, in particular, the days overdue. Do an analysis of your existing customers – figure out which ones pay on time and which ones don’t. Is there something you’re doing different to explain this? If not, are the bad paying clients really worth your time?

If they are, consider offering incentives for prompt payment, such an early or on-time payment discount. A word of warning though: be very careful before throwing discounts around. You need to go all the way back to step one first, to figure out if you can afford to give a discount.

There’s a lot of thought, engineering and re-engineering that goes into getting your prices just right, so make sure you’re not undoing all of your hard work with an ill-considered incentive.

4. Penalise late payers

One of the best ways to make sure you’re paid on time is to take a carrot and stick approach-motivating with discounts and punishing with late payment interest.

The catch: you need to be very careful with your interest rates, lest you fall on the wrong side of the law. Make sure that any interest you’re charging properly represents your actual loss, not anything over and above that. It’s a good idea to speak to your accountant to have them help you calculate the figure. Once you’ve got it, check with your lawyer that it’s within acceptable limits.

5. Hold back the goods

At the end of the day, your agreement with your clients is to provide a good or service in exchange for payment. If there’s no payment, you’re not obliged to hand over the good or service. Many of us in service-based businesses forget this, but when you go to a dentist, would you even think of walking away without paying the bill? Of course not. So why do you extend that unnecessary leniency to your own clients?

Consider holding back the final product until you’re paid in full. Designers use this technique with great success, issuing watermarked or “locked” products until final payment is received. Sure, it’s not foolproof, but it’s a great start and will deter most honest (or lazy) people from taking your stuff without paying for it.

To work out how you can apply this in your business, look at the deliverables you’ll be producing throughout the project, and consider aligning payment milestones with those deliverables. Once you get paid, you deliver. Simple.

I’ve successfully used this tactic in my own business to get my invoices paid within 15 minutes of sending them to my clients. Imagine what that would mean for your business!

6. Upgrade your accounting system

Most modern accounting systems now make quoting, invoicing, receipting, chasing and record keeping easy, once you get the hang of it. If your accounting system is making your head hurt, invest in a session with an accountant or bookkeeper who’s an expert in your system and have them explain the ins and outs.

Once you know what you’re doing, use the full power of the system. Use it to issue your quotes, quickly turn quotes into invoices and set up automatic email reminders. Just remember not to lose the personal touch: customise the reminder emails so they speak to your core values and don’t hesitate to pick up the phone. A phone call is a lot harder to ignore than an email jostling for space in an overflowing inbox, so you’ll find it pretty effective.

7. Make it easy for your clients to pay you

Speaking of accounting systems, have you integrated your invoices with a payment gateway provider? The fees they take off the top might seem a little hard to swallow, especially when you’re strapped, but making it as easy as possible for your clients to pay you is a sure-fire way to get paid faster.

If you’re worried about the extra cost, add the merchant fees on to your bill. Call it a convenience cost. You’ll be surprised how many people will happily pay it (especially if it means they can collect points).

8. Be consistent

To have a cash flow positive business, you need a strict, consistent collection policy to ensure the shortest possible time between you doing the work and converting it into money in the bank. If you let invoices slide from time to time, your clients won’t take you seriously and payment dates will start to slide. Don’t let your clients take advantage of you – put the systems and processes in place now to make sure you get paid on time, every time.

In summary, making sure you get paid on time is something that requires a bit of hard work to set up at first (working out your profit goals, revenue streams and cash flow cycles, developing a payment strategy and setting up accounting systems), but once you’ve set it up once, it runs like a well-oiled machine. If you make a change in your business, a couple of tweaks to the system here and there will keep you on the straight and narrow.

Want to know more about how you can improve your cash flow? Contact Her Lawyer for an obligation free discussion.

About the author:

Courtney Bowie is the founder and principal of Her Lawyer, a virtual law firm for ambitious women in business. Find out more at www.herlawyer.com.au or contact Courtney atinfo@herlawyer.com.au. You can connect with the Her Lawyer team on Facebook atwww.facebook.com/herlawyerau.