Six tips to improve cash flow
Slow and non-paying customers can be detrimental to the cash flow of a business. Here are 6 tips for all business owners and accounts receivable managers to effectively manage debtors.
Invest in credit reports
Before you take on a new customer, it’s important to check their history for any adverse information that could affect you as a creditor. Avoiding slow and non-paying customers will help safeguard your cash flow by minimising the risk of bad debt.
Improve timely payment with consistency
Make sure all customers agree to your credit terms in writing. Have a formal plan for collecting payments and stick to it. Always provide an invoice on delivery and ensure all the details of your debtor are correct. Setting up timely reminders to provide statements and follow up calls will train your customers to pay on time.
Manage your terms appropriately
A big sale can put pressure on a business to acquire additional resources in order to meet the demands of a large-scale project.
Requesting a down payment or adjusting your terms can help alleviate financial obligations that include purchasing more inventory and hiring extra staff.
Monitor existing customers
It’s difficult to review the creditworthiness across all existing customers at any given time. Automated customer monitoring will alert you to important changes that could impact timely payments, and ultimately your cash flow. Such changes include a customer defaulting on payment with another company, going to court or receiving a winding up notice from the ATO.
Actively recover bad debt
If you become aware of an important change that could hinder your customer’s paying behaviour, check in with them immediately and consider pausing or moving their account to cash on delivery. Let slow and non-payers that you take debt seriously by attaching a CreditorWatch logo to your statements or letter of demand.
Report bad debtors
When you cannot retrieve payment and have exhausted all options for chasing payment, register a default to warn others.
This can encourage a bad debtor to repay the amount out of fear of ruining their credit file.