Managing cash flow is often one of the most important parts of running a startup company. Your cash flow is absolutely vital to your company’s success, as without regular incomings, your business will be unable to survive for long.
At first, your incomings may be mainly in the form of business loans, your own financial investments, and perhaps even personal financial gifts from supportive friends and family members.
However, as time goes on and more expenses are necessary, you will find that the bulk of your income is in the form of customer and client payments. Ensuring that each and every invoice that you send out is paid on time is absolutely vital to managing your cash flow and ensuring that you have a regular, reliable income that you can use to support your business.
Whenever you send an invoice to a client for goods and services, there is always the risk that they will not pay on time or worse, not pay at all. However, thanks to invoice financing, there’s now a way that you can guarantee that a large percentage of the money that you are owed will reach your business bank account when needed, regardless of when your debtor finally coughs up.
With invoice factoring, you are essentially ‘selling’ the overdue invoice to the factor, who will pay you on average around 70-90% of the total requested amount. You are then able to access this money, enabling you to maintain a manageable cash flow and make better predictions.
However, it is then up to you to ensure that the recipient of the invoice makes the payment. Once this is done, the invoice factor will then pay you the remainder of what you are owed, minus a fee for using the service. Many businesses choose to offset this fee by charging a late payment fee to their client.
The longer you wait for an invoice to be paid, the less chance you have of ever seeing the money. Because of this, it’s important to have a good debt collection company on standby. Even if you are using an invoice factoring or financing service in order to ensure that you have the money in your account when you need it, you still need to ensure that steps are being taken to recover the debt from those who owe it.
Rather than dedicating your precious time to chasing up overdue invoice payments which can have a negative impact on your business as you will have less free time for other essential tasks, if an overdue invoice goes over a certain period of time, usually around 60-90 days, it’s time to call in the professionals.
Debt collection agencies will work on your behalf to recover the full amount, either in full or in arranged instalments, from your debtor. The majority of reputable debt recovery companies will also work on a contingency basis, meaning that you will only pay a fee if the debt is successfully recovered. As with invoice factoring, you may be able to offset some or even all of this fee via late payment charges.
What you can do
In order to make sure that your business can best maintain its cash flow and has a stream of income which is as steady and reliable as possible, it’s important to be hands-on. Although using services such as invoice factoring and debt recovery agencies can be extremely useful and in some situations absolutely essential, it’s always best to prevent the situation from happening in the first place.
In order to do that, it’s vital that you rethink the way in which you are invoicing your clients. For example, simply putting ‘please’ and ‘thank you’ on an invoice can increase your chances of having an invoice paid on time by over five percent. Along with that, it’s also absolutely vital to ensure that your invoices are worded in such a way that is easy to understand, using layman’s terms instead of business jargon.
What if you’re polite and clear on your invoices, and that still doesn’t seem to be working? This is where the use of incentives come in. Offering your clients a monetary discount if they pay their invoice before a certain date or within a certain amount of time is a sure way to grab their attention and make sure that they don’t forget to pay. You will be surprised at how much difference even the tiniest of discounts can make!
When you first start out, it’s important to do whatever it takes to maintain a steady cash flow.