For small businesses, where cash flow is critical, being paid on time is vital. But to me, there seems to be a rather perverse imbalance when it comes to getting paid: The biggest players insist on prompt payment without any credit…
- When you go to a supermarket you pay as you take the goods.
- When you buy online, you pay at the point of order, before you even get anything.
However, as small businesses, it seems to be inferred that we’ll always give credit, and even then it can be a fight to get paid on time!
Obviously, there are things you can do to mitigate the effect of late payments:
- Get your customers to pay by Direct Debit or standing order, rather than issuing invoices and waiting for payment.
- Have a short credit window (nobody says you have to have the 30 days standard), and contact them before it is due to check to see if there are any issues with the invoice.
- Don’t give credit at all – ask for payment on delivery or completion of the project.
- Take a deposit before starting work, or even invoice for the whole amount before you start.
How quickly do YOU pay?
To me, there is one other key thing we can ALL do though – be fair to our own customers. Every small business is in the same situation and can suffer the same problems as you.
For this reason, I always tried to ensure I pay any invoices for small businesses well within the credit limits they specify, and (cash-flow permitting) as soon as possible after the invoice is received. In fact, I’m so committed to the idea that I signed Pixooma up to the Prompt Payment Code which independently monitors us to ensure that we are paying our invoices promptly.
Bad cash-flow practice?
Now, I know from a cash-flow perspective, that we should get our customers to pay early and pay our suppliers as late as possible because this maximises the reserves we have. BUT, sometimes I think being nice to other small businesses trumps this principle. If we all pay promptly then surely everyone ‘wins’?
What do you think? How promptly do you pay your suppliers, and how do you maximise cash-flow in your business? Contact us and let us know as we can all learn from each other.