Getting Paid (Part 3)

November 25, 2009

The missing link in most new businesses administration system is the failure to draw up comprehensive ‘Terms and conditions of sale’. These are the terms under which the customer agrees to buy and pay for the good or service you are providing them. Regretfully, many businesses simply do not write up terms and conditions of sale and the customers are given the wriggle room to enable late payment.

Your terms and conditions of sale should be clearly stated:
• In contracts
• On the back of delivery dockets
• On the back of invoices
• On the back of statements
• And importantly, make sure it is legible and use same font, font colour & size as you use in the rest of your documentation.

The terms and conditions of sale should state:
• Who has authority to sign for goods/services
• What is the credit limit if any
• When exactly is payment required, either after the delivery of goods or issue of invoice
• The consequences of late payment – interest payable on late payments, repossession of goods, denial of support etc.
• Will there be exchange of goods or credit notes
• What are the terms with regard to return of goods/credit notes or repayment
• It should also note that the customer’s statutory rights are not affected by the terms and conditions.

When you are drawing up your terms and conditions of sale you can also draw up your payment procedures internally. For example, when you are doing business with clients:
• How do you get the client to accept of terms and conditions of sale in contracts
• Have delivery dockets (with acceptance of T&C on back) and make the person receiving the goods sign and print their name. This should be a carbon duplicate with the customer getting the top copy and you keeping the bottom copy.
• Immediately send invoice when goods are delivered
• At end of month send statement
• With regular customers send statement – even if zero
• At end of credit term send letter of overdue account (with copy of delivery docket, invoice and statement)
• Follow up with phone calls
• If over a month overdue – personal call and do no further business until late payments are cleared.

With new clients
• Do credit checks on potential new customers
• Get them to Sign a contract or terms and conditions acceptance
• Cash up front initially
• Credit terms are earned by new customers at specific milestones
• They must prove their reliability
• If they don’t pay early – do not do further business with them
• There are more fish in the sea


Getting Paid (Part 2)

November 23, 2009

There are many reasons why people are late paying in business.
• They may just be disorganised. Unfortunately, many self-employed persons are not good with their administration because they set up their business as they have good skills in a specific sector but may not have the necessary business, selling or management skills. Simple lack of organisation is a key reason why many people are late payers.
• Another key reason for late payment is that you have not met the customer’s financial system requirements. This is particularly common when dealing with larger companies who have formalised administration systems. The customer will need specific paperwork that a smaller business may not produce. An important factor here is to understand that many businesses will now only pay on receipt of a monthly statement. Thus, a small business person will send in their invoices and wonder why they are not being paid, whilst the administration department of the customer is holding the invoices until they are sent a statement. You need to know your customers requirements.
• Unfortunately, a small percentage of people are acting with fraudulent intent. These are conmen (and unfortunately conwomen) and there is lilt you can do once they owe you money. The key is to ensure that you don’t do business with them in the first instance.
• In the current financial circumstances many businesses are forced to engage in a policy of not paying on time. In a situation where businesses cannot get overdrafts, extensions on overdrafts or other short-term finance, many businesses are being forced to hold on to as much cash as possible. Thus, putting off payment is a strategy that is being used. In this case you will probably get paid but you will have to wait.
• Finally, the customer may simply not have the money. There is a limit to what you can do here but there are 2 factors you should be looking out for. First, customers who owe you money and are keeping in regular contact are showing good faith. If you have to chase up people then this is a bad sign. Second, people who are paying in bits and pieces are showing good faith but those who are not are a serious concern.

The key to getting paid is all about administration. Making sure that you send out your invoices, statements, and follow up calls religiously is the primary method of ensuring that late payments are limited. Specifically, you need to be making time very week to do the following
• Update purchase and expenditure ledgers/books
• Send out invoices (immediately)
• Send out statements (monthly)
• Send out letters on overdue accounts
• Bank reconciliation
• Bank lodgement record

These are the key pieces of administration and information necessary to know:
• Who owes you money
• How much do they owe you
• How long overdue is the payment
• When your systems are properly set up, you know what actions to take and when

Armed with this information and proper systems, you can seriously limit the number of people who owe you, how much they owe you money and how long they owe you. Good administration and good cash flow are two sides of the one coin.

Getting Paid (Part 1)

November 18, 2009

We all know that cash flow is the lifeblood of any business. Thus, getting paid is crucial for your business. Clients who owe you money due to late payments create cash flow difficulties for your business and you must take action to limit your liability to these late payments. Late payments create extra administration for your business which means that either your staff’s time is being wasted chasing up debtors or worse, your time is being tied up and this costs you not only the time you lose doing the administration but there are opportunity costs incurred because you cannot use this time to develop new business. Late payments also create bank charges for you in many cases. Thus, late payments have very negative consequences for your business.

The result of people engaging in late payments is that you are in effect giving them an interest-free loan. The money they should have paid you is now being used to pay something else. If you had not let then pay you late then they would have to use their overdraft facility or take out short-term financing which would cost them money. So when people are late paying you remember to ask yourself, ‘who is giving you an interest-free loan?’

Here is the key point that you need to understand about late payments and debtors. If you are not being paid then it is YOUR fault. You did business with them in the first place, you gave them credit terms and you probably have let them off the hook by not following up on the administration properly. There are actions that you can take to limit your liability to late payments and we will cover them in the next few posts.

We appear to be in the last quarter of the worst world economic recession in living memory but market conditions are still very bad. Some of the larger economies have officially turned out of recession: the United States, France and Germany for example and some even avoided recession: China, India and to a great extent Brazil. So is this a good time to set up a business? There is as always no correct answer as whether this is a good time for you is very specific to your circumstances. However, there are a few considerations:

• Not all industries are as affected by recessions as others. For example, outsourcing has probably done well in the last two years. Is your industry recession proof, if so, then this may be the ideal time to strike out in business.
• Another issue is what markets are you trading into? If you are trading into markets that have turned out of recession then these are markets that should be seeing growth and opportunities for new businesses. Remember, over the past 2 years many potential competitors have failed and are no longer in the market and thus opportunities may be available.
• Do you have a specific market niche? Customers still need to buy essentials, even in a recession. So, if you have a specific market niche or expertise then you may still be able to generate sales and market growth.
• If, however, you are still looking to trade into a market that is still contracting then it may make sense to hold off just that little bit longer.

Overall, it is the product or service offering that you can present to customers that is more important than the general state of a market. Many competitors are by now battle weary after the hammering that most businesses have taken in this recession and a certain amount of positive mental attitude may at this moment be a unique selling point. But ultimately, it is down to you, your product and the market niche you can make that should be the deciding factor in whether to set up at the current time.

Always remember, we are at the beginning of an economic upturn. Are you going to be on the wave as it surges or will you miss this one? Well, that is down to you.