Belief and passion may get you out of bed every morning, but it’s not so fun when business keeps you awake at night too.
For many small business owners, the night sweats come as one recurring question: ‘When will I get paid?’ And frustratingly, it can depend on who you’re doing business with. The answer to this question can impact your cash flow, your business relations, your decision making, your ability to trade – and can have knock-on effects into your personal life, too.
But you do have the ability to check the credit state of a potential customer before doing business. Using this information, you can assess the likelihood of late or non-payment, consider the onward effects, and make adjustments to reduce your risk.
How? Here are three ways:
1. Request a deposit or cash on delivery
Can you see that your customer often takes a few months to settle their bills? Make it your policy to request two payments – a deposit and a final payment – or request cash on delivery for any stock you send their way. This will help protect your cash flow, and reduce the risk of being left out of pocket.
2. Tighten your timeframes
Can you can see that a potential customer is high risk – because, for example, they are asking for credit terms from someone else? Respond accordingly without causing a fuss. Tighten your next payment terms from 30 days to 14, for example, so you can start pushing for payment sooner.
3. Better manage your cash flow
Does your customer have a clean credit report, with no red flags? Their payment history can have a valuable bearing on your bottom line. Perhaps they’re a big business that won’t budge on its payment terms. You can use trends to project repayments and manage your cash flow. Perhaps they’re a small business with no signs of distress. You may wish to work harder to secure extra business with them, to help the health of your cash flow.
Perhaps they’re a small business with no signs of distress. You may wish to work harder to secure extra business with them, to help the health of your cash flow.
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