Recently I went live on Facebook talking about businesses that send out invoices on the same day as they want it to be paid, and it generated a lot of discussion around bad debt.
One of the business owners who joined that discussion revealed they were $40,000 in debt as a result of poor customer paying.
Here’s the bottom line: how you invoice your clients is costing you money, and causing you a heap of stress.
In this blog I walk you through the 5 things you need to know to turn this around so that a) your invoicing isn’t causing you heartache, and b) it is improving your cash flow.
1. Set this up right in the sales process
This problem often begins way back in the sales stage.
I was talking to a client the other day who had a bit of a cash flow problem.
In their business, they sell a product which they have to bring in from Germany. The order time and the payment time mean they’re significantly out of pocket until those invoices are paid.
They are turning over a couple of hundred thousand dollars a month, so it really has a big stress component, particularly on the wife who manages that cash flow, and is the lead on that in the organisation.
We did some careful orchestrating and renegotiated the set up with both their main customers and their supplier.
This meant that they extended the supply time (or the payment time for that) and reduced it at the other end, which meant they’re actually now cash flow positive, as opposed to being $50-$60,000 out of pocket a month.
2. Communicate the process
From a customer experience perspective, you don’t really mind what the process is, as long as you know about it.
When you don’t know about it, it can create frustration.
In my rant on Facebook I explained how a provider that we’re using sent an email saying I had to sign all this paperwork to accept the terms and conditions, and pay the full amount today.
That was the first that I’d heard of it.
I wasn’t in a position to drop everything to do that, because in our business we have a set day for doing administration, contracts, and payments, and I have other set commitments on every other day of the week.
The fact is that I didn’t know the process from the outset, so I couldn’t meet their expectations.
That experience left me feeling pretty frustrated.
You need to be able to clearly communicate the process of how you want to operate. Hint: that process needs to mean that you’re not holding debt for ages.
3. Set up your expectations
Make sure the customer knows what’s expected of them, and what they can expect from you.
When you’re clear on your expectations, nobody is going to get their nose out of joint because they didn’t know what was needed.
The key of all of these first three is your ability to communicate.
You need to communicate your expectations and processes so that customers know it, your suppliers know it, and everyone understands how it’s all going to work.
Clear and consistent communication can change the game for you.
I was talking to a member of our networking organisation the other day who was saying that he had a bit of bad debt.
He explained that the business does a lot of remote work which meant they often don’t have internet access needed to process payments in their online system.
As a result, they would have to send an invoice for the work and then wait 7-14 days for payment, or inevitably end up chasing people for the money.
Each month they have $10-$20,000 caught up in that process.
Their normal process was to take payment on the spot, so I suggested taking a photo of the person’s credit card and processing it as soon as he has reception.
That solution is a winner, thereby moving $20,000 a month back into their bank account.
5. Show the value
The icing on the cake in this process is in communicating the value of how your business operates.
When you explain your processes and why you do it that way, customers and suppliers can have a greater understanding of what you do, how you’re doing it, and why it’s really important that they do what you need them to do.
If you're having trouble with bad debt or slow-paying customers, and it's causing you stress, book an Action Call right now. In that call, we can run through your processes and set up clear plan to improve this for your business. Book your call here.