By Kathleen Orlando, CPA
Small business is built on personal relationships with our customers and the competition is fierce for almost any product or service. These tough economic times have been particularly hard for many small businesses and many of my best clients have seen their cash flow come down to a trickle. Here are a few strategies to use to keep on top of your cash flow. You don’t want your clients’ cash flow problems to result in your cash flow problems.
Use a contract or engagement letter whenever possible.
Confirm the order by telephone, email, or regular mail. Be sure that your payment terms are clearly stated. Whether your terms are COD, payment in advance, net 10 or net 30, be sure they appear on any and all correspondence, invoices and statements sent to your customers/clients. Remember that a purchase order from a customer is a legal contract and the fundamental rules of “offer” and “acceptance” apply even when you receive a verbal order. If everyone knows the “rules” at the onset, the expectation is set for the completion and payment of the order or assignment.
Complete the assignment or delivery in a timely manner.
When you accept an order from a customer, send an acknowledgement stating the expected completion or delivery date, before you begin the assignment or order processing. If there are delays in completing an order or assignment, that could impact your customers’ business and increase the likelihood of charge-backs, returns, or non-payment.
Send out invoices in a timely manner following completion of an order or assignment.
There is nothing worse than completing an order or assignment, and not sending an invoice for 30 days or more. The longer the time between the completion of the order and billing for the merchandise or services, there is often a decrease in the perception of the value of the transaction in the mind of the customer.
Set aside one morning or afternoon each week to keep a steady flow of invoices going out the door. It’s usually not practical to send an invoice with every completed assignment or shipment, but be sure to keep current with your billing to customers. The sooner you send an invoice, the sooner you can expect payment, or you will have a better chance of resolving any issues regarding this customer before you accept another order or assignment.
If your assignment is for services provided on an hourly basis, be sure all your employees or other services account for their time so you can accumulate these costs and send a complete bill. If the project will extend over several months, send progress bills at least monthly. It may be difficult to get paid for unbilled services if you send out an additional invoice months after the completion of the initial customer order, just because your internal records are behind schedule.
Don’t be afraid to say “no” to someone who already owes you for past due invoices.
No one wants to say “no” to potential business these days, but be careful when you accept an additional order from a client who already hasn’t paid. This practice could make a small customer problem into a much larger problem, for you. You work hard – there’s no reason that you should work for free.
Be flexible and accept payment terms from your clients.
Review your Accounts Receivable outstanding balances and keep in contact with outstanding customers. A series of smaller payments may be easier than the payment of one large outstanding invoice. If you do accept a payment plan, do so in writing, and be sure to enforce the terms, or you could be right back to square one.
Be sure to thank your clients for their business.
This one simple act can make or break a business relationship. You may not be able to send out a hand written card or call each client personally, but be sure to let your customers know you appreciate their business.
About the author
Kathleen Orlando, CPA, of Kathleen Orlando & Associates in Palos Heights IL, is president of the Chicago South Chapter of the Illinois CPA Society.