Achieving your small business growth goals is largely a matter of increasing your sales. Why be satisfied with the status quo when you can always do better? There are surely opportunities to attack new corners of the market, build new customer relationships or perhaps just do additional business with the customers you already have.
If you have sales promised in your ledger but your customers are failing to pay what they owe, it can hurt your business.
It's usually a safe bet that the more you sell, the more your organisation will grow. This isn't a guarantee, though. There's a downside - bad debts. If you have sales promised in your ledger but your customers are failing to pay what they owe, it can hurt your business in multiple ways. First off, you don't have the cash you need for future growth, and second, you've got to waste time and energy getting it, which carries a steep opportunity cost.
Therefore, growing your business hinges upon a second goal besides sales - improving your cash flow. How will you do it?
Avoiding situations with bad debt
Perhaps the easiest way to solve the "bad debt" problem and improve your company's cash flow is the preemptive way - simply to avoid bad debts in the first place. According to the Victoria State Government, this can be done if you plan carefully for it in advance.
Before you enter into a business agreement with a new customer, perform thorough background checks and make sure you're not working with someone who has a history of bad credit. If the buyer is reliable, it might be acceptable to sell them products on a credit basis. But if they're not reliable, you may need an alternative approach, such as only shipping to them once their payments have cleared.
You can also improve the debt collection cycle by acting quickly on your end. The moment you know how much a customer owes on a given sale, send them an invoice that spells out exactly what they owe and when they're required to pay it. If you make all the rules clear in advance, customers will have no excuse for not following them.
Taking proactive steps toward debt collection
If you've done your best to avoid bad debts and still not been successful, it might be time to kick it into another gear. What can you do to turn that pile of unpaid invoices into a timely series of payments?
The Globe and Mail recommends being proactive about it. Rather than letting unpaid debts fester for weeks at a time, pick up the phone and talk to your customers early in the process, asking about getting those debts paid. This doesn't mean you have to be pushy or jump to conclusions about your customers being deadbeats - especially early in the process, your debt collection calls can be friendly and courteous.
While you don't want to get angry or otherwise overly emotional about collecting debts, you do want to be firm and finalise the details on how you'll be paid. When you talk to debtors, try to nail down exactly how much they can pay you, how and when. This will help your business plan better for the future.
Getting debtor finance when you need it
Sometimes, despite your best efforts, you simply aren't able to collect debts as quickly as you'd like, and you start to encounter trouble with investing in your company's future. If and when this happens to your business, it might be time to consider how debtor finance can help.
Cash flow can make or break a business, and debtor finance represents a way to improve cash flow by getting quick access to the money you're owed. Not every debtor can be trusted to pay you in a timely fashion, but fortunately debtor finance is a reliable way to get cash without waiting or worrying.
If you'd like to learn how Earlypay's Invoice Finance & Equipment Finance can help you boost your working capital to fund growth or keep on top of day-to-day operations of your business, contact Earlypay's helpful team today on 1300 760 205, visit our sign-up form or contact [email protected].