Getting paid on time is always one of the challenges for small business.
Not only can it be awkward to ask "little Ms Jones" for payment on the day, but seeking on time payment from your larger, more regular clients can also appear somewhat counterintuitive ("What if the client gets irritated and looks for an alternative supplier")
Unfortunately, we can't shop at Woolworths and tell them that our "cheque is in the mail" or that we'll "eft that later today". Likewise, irregular, once off clients shouldn't expect unverified credit from your business. If you are good enough to attend to site and solve their problem, or sell them items from your inventory, they should understand and accept your payment terms. They should be good enough to pay you on the day, or within your agreed payment terms.
Whilst we appreciate that, in good faith, some businesses can, should and do offer credit, you also need to understand that your business requires cashflow for your own survival and successful progression. Thus, it's a fine art between offering professional and sustainable credit and getting paid on time and within your cashflow boundaries.
In speaking with an ATO representative last week, they are also seeing a remarkable increase in payment plans across the standard business obligations like GST, Payg and last year's income tax. They were cautioning against smaller trade businesses exposing themselves to large projects without keeping a tight eye on trading terms and cashflow exposure. The ATO themselves were suggesting contracts with upfront deposit payments and progress claims.
We understand that the QBCC have strict guidelines as to what deposits trades can request, however we urge all small businesses to take a close look at their own cashflow before taking on large exposure projects. It only takes just one large contract to delay payment, to put the screws on your business.
HANDY HINT : Take heed when a client keeps you in arrears at all times, and only pays you last month's bill once you have already started this months work. They rely on your trust and bank on you turning up to work every day, simply to get paid for last months work.
Our guide to getting paid on time
Set up a merchant facility so that you can offer credit card payments and on the day payments. The small charge that the banks charge you can sometimes be a lot cheaper than the cost of the administration Burdon of chasing payment, debt collector commissions or writing the debt off to bad debts. Some clients on charge the merchant fee to the end user too, which is always an option.
Invoice when you have done the job. Don't wait until the end of the week, or the end of the month to send out your invoices. "Do and Charge". The sooner your client gets the bill, the sooner (hopefully) you'll get paid.
Reconcile your bank daily or weekly, and keep a close eye on your debtors ledger. Send courteous reminders to clients as soon as their payment falls due.
Don't be afraid to remind your clients that payment is due.
Don't be afraid to call them and ask for payment.
If you are working with property managers or body corporates, send them an email towards the end of the month cross checking that the outstanding invoices are in the queue or system for the end of month payment run. Be proactive in chasing payments, rather than waiting until it's been missed in the monthly payrun to then chase up (that the invoice was lost).
Ensure transparency in your engagement with the client so that expectations and payment terms are clear and concise.
Where possible, enter into a written agreement outlining upfront deposits and progress payments.
TOP TIP : Sending end of month statements are a great way for your clients to reconcile what they owe you, but it's not direct enough to actually consider it as a reminder for payment. Statements nowadays almost seem to serve a different purpose to what they used to when we were all using cheques and manual pay runs.
Remember, even those businesses that have traded successfully for tens of years can fall victim to bad debts. Sometimes it's not even that your client doesn't want to pay you, but if they have fallen victim to a "bad egg", they simply may not have the option to pay you.
Cashflow problems have a domino affect in our society, and somethings are beyond our control, but the "squeaky wheel gets the oil" so be the squeaky wheel when it matters.
For more information, or if you're looking for a proactive accountant to help you in your business, reach out to us at MQ Accountants.
This articles intention is to inform rather than advise and is based on legislation at the time. Each Taxpayer’s circumstances vary so we strongly recommend that you discuss this information with your Tax Agent, Accountant or Bas Agent before implementation. If you take, or do not take action as a result of reading this article, we accept no responsibility for any financial loss incurred. This is general advice only.