The best way to overcome a crisis is to make things predictable in an unpredictable time or, in other words develop a strategy and structure your approach.
1. Don’t get your debtor days doubled
While every business is aware that we are in the middle of a crisis right now, most businesses fail to understand how to optimise their cashflow. Cashflow is now more important than ever. If your debtor didn’t pay, ring them the day after the due date, don’t just wait. Be upfront and make sure the value/time/product/services provided is paid for. Can you offer to arrange a payment plan for this critical time? Would that help your customers?
2. Evaluate your payment terms
Be honest with yourself, when was the last time you reviewed the terms and conditions of your business or your payment terms in particular? What are your payment options, when do you want to get paid, how do you want to get paid and what happens if a debtor pays late, or better early?
3. Enforce payment discipline?
Be proactive and don’t wait. Even if they are mates, even if they are the “good people”, in a crisis such as this, they might experience financial stress. Still, that shouldn’t stop you from
actively working with them on reducing their debt. Phone them to understand their situation and offer a solution that suits both sides.
4. Can you ask for a deposit or upfront payment?
Upfront payments or deposits are a great way to secure your businesses cashflow.
It’s doesn’t have to be much, maybe 25% would cover your material costs or 50% cover your costs at the manufacturer. However, have rules in place for the remaining amount, when the job is finished. Let’s face it, upfront payments and deposits your “insurance” in case your client becomes insolvent.
5. Can you delay delivery?
It is a confrontation and therefore it should be done with care. However, if your debtor did not pay the deposit then you must refuse delivery. It is a way of securing payment or at least keeping the product in your control.
6. Segment your customers and suppliers
Create a list of all you customers and clients, then identify the ones that always pay on time and the ones that never pay on time. Now, have a look at the revenue they generate and divide your list into low revenue clients and high revenue clients.
You should now have a good understanding which of your clients you want to focus on (high revenue/on-time payments) and which clients you might not work with in the future (low revenue/never on-time payments).
7. Get everyone involved
Everyone in your business need to understand the cash has to be collected on time. If you do not encourage everyone to share the same goal you are not pulling on the same string.
Securing the cash is everyone’s business. Your employees want to be paid therefore you need to be paid by your debtor.