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Archives for May 2018

Are you getting paid on time?

Managing cashflow is one of the biggest and most important challenges you will face in your business.

It doesn’t matter how brilliant your business idea is, the old saying “turnover is vanity, profit is sanity, but cash is reality” is so true.

Unless that fabulous new customer actually pays you, in full and on time, they are not a fabulous new customer at all.

It’s crucial, then, not only to effectively manage your finances and keep on top of income and outgoings – but also to do as much as possible to ensure you get your invoices paid as quickly as possible.

So what can you do to help prompt payment?

Before starting work:

  • Make sure you have a signed agreement for your work. Ensure your terms and conditions are clear and payment terms are agreed.
  • Check out who you are working for if possible – consider looking at Companies House or doing a credit check on your client. A client on the edge of going under is not going to pay you!
  • If it’s a significant piece of work, consider asking for a deposit or part payment upfront, especially if you are having to incur costs from the outset.

Once the work is finished:

  • Be sure to invoice promptly. This may sound obvious but many businesses don’t invoice as soon as the work is done, and if you are doing several things at once, it’s very easy to totally forget.
  • Include a due date prominently on your invoice – in line with your agreed terms.
  • Consider payment as soon as the job is done using a card reader. You wouldn’t expect to leave a restaurant and get an invoice next week, so why would you expect to eg pick up your printed fliers and not pay there and then?  If immediate payment on completion has been agreed, then make it easy for your clients to actually do this by having the right technology in place.
  • Make sure the invoice is correct – and complete. Queries are a very good way of delaying having to pay!
  • Consider checking the invoice has been received by your client and it’s all OK. This again stops any “I never received it” delay tactics later on.

Chasing payment:

  • At some point you are probably going to have to chase up someone for payment and this may not come easy to you.
  • Remember, business is business, it is not personal – and hopefully more often than not, the payment has just slipped your client’s mind and they will cough up with a gentle nudge.
  • A couple of reminder emails initially, with a copy of the original invoice, is a good, professional, non-aggressive way to start.
  • If that fails, then you are going to have to pick up the phone. If you are having to call a large accounts department, then do get the name of who you speak to and try to come off the phone with a positive step in the right direction.  If it’s not immediate payment, it may be finding out the date of the next payment run, and confirmation that you are on it, or the email address of the person who needs to authorise the payment etc etc.
  • Hopefully you wont have to go as far as taking legal action as this is time consuming and takes your attention away from running your business. But don’t be afraid to follow this path, if you have done the work as agreed, then you deserve to be paid. Several small business schemes (such as the FSB) offer discounted rates and free assistance to help you chase slow payers, so if you are a member of such a group, make sure you use the services on offer.
  • Whatever you do – don’t start a new project for a client who has not yet paid for the last piece of work – unless you have a very good reason to believe they are good for the money!

Many accounting software packages now can greatly help with your debtor management.  The invoice can be prepared quickly and emailed over to your client, standard reminder letters and statements sent out and reports easily prepared to show you who still owes you money and how long it has been owed for.

Chasing for payment takes time and its not fun; so automate as much as you can, and concentrate on keeping your clients happy – as happy clients tend to pay up!!

For more information, please contact Rosie Forsyth at Wilkins & Co.

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Are you making a profit?

People start businesses for many reasons – to be your own boss, to have flexibility, to escape the rat race and be home for the kids, or to develop a great idea you have had.  But whatever your reason, you need to generate a profit in the long term to keep the business going.

Put simply profit is the difference between your total sales and your total costs for a period and the only ways to increase your profit are to increase your sales, or reduce your costs!

Your costs include the total costs of running your business, not just the direct cost of making what you sell.  That’s where pricing becomes difficult, and you need to have some basic information to hand before you can come up with your sales price – you need to know your costs, and you need to have an idea of the income you want to generate for yourself.

Most of my clients provide services, not goods, and often say to me that they don’t really have any costs.  But your time is a cost, and you need to have an accurate idea of how long something actually takes to do – and you need to factor it in to your sales price.  This might include background research, admin time, client discussions and meetings.

You also need to think about your other costs that are not directly related to one customer – eg  rent, subscriptions, insurance, accountancy, phone charges, stationery etc as these all need to be paid from the money generated by your sales if you are to make a profit.  Make sure you account for all your costs too – if you don’t include the stationery that you bought while you were at the supermarket, or the parking ticket somewhere on the floor of your car, you aren’t building up an accurate picture of the true costs of running your business.

Once you have all this information – you can think about your pricing strategy.  There are many different ways to price your offering – it may be that you have different profit margins for different products depending on the level of expertise required to complete that project, you may offer a discount for buying in bulk.  There may be a generally accepted fee in the market place for what you are doing, and you should try to find out what the competition is doing.  But remember – you do need to be selling at a profit and covering all your costs if you want to stay in business.

New businesses are often tempted to price their services low to gain clients – and whilst there may be occasions when that’s a good idea – it shouldn’t be a long term strategy, especially if you are operating in a local market.  Awkward conversations about why you charge £x to one client and £y to another who turns out to be their best mate can be difficult, even if one was your very first client and you were so excited to get them you quoted a rock-bottom price (yes- I’ve been there!!)

Don’t undervalue yourself and think hard about taking on a client who immediately queries a reasonable quote.  A client who wants to knock you down on price may end up being more hassle than they are worth; are they coming to you because they value your service, or because you gave them the cheapest price?  You could well be better off with fewer clients paying you a higher price than with lots of clients at a lower price.

So before you stick your finger in the air and come up with a price when next asked, spend a bit of time thinking about what it is actually costing you to run your business, add in your profit margin and quote accordingly!!

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