Business advisors will tell you that one of the main reasons small businesses fail is cash flow. That is either they are not financed correctly in the first place, with sufficient funds to see them through the start-up phase, or that slow paying, or worse non-paying customers are destroying the financial health of the business.
When running a solo or small business there are two main reasons given as to why collecting payments from your clients can become an issue. Firstly it may be that you are so busy doing whatever it is that you do in order to make money, that you simply lose track of who has paid and which payments are late. Secondly, particularly if you are a solo business, there can be a level of embarrassment when the only person that can call the customer asking for the invoice to be paid, is the same person who provided the service.
Whatever the reason, it is imperative that you manage your cash flow effectively or you will soon be out of business. You should have a cash flow forecast that is made up of expected receipts and disbursements for the following 3 months (as a minimum) with some room for the unexpected factored in. With this information to hand you can easily see any potential difficult spots.
Once you have put together your cash flow forecast, it’s a good idea to take a close look at the expenses part of the forecast. Look for where you can cut some costs or find alternative suppliers, and think about what items are ‘nice to have’ but not essential to your business.
With the expenses under control you must make sure that the receipt part of the equation is taken care of with an effective collection system. Whichever system you use for issuing your customer invoices, set up a system for following up late payments. Get into the habit of issuing statements and following up by email, telephone or letter depending what is appropriate for you and your business.