Xero’s recently launched Small Business Insights harnesses data from hundreds of thousands of businesses so Australian business owners can better understand their own business.
One terrific visual on getting paid shows the average number of days it takes for an invoice with 30-day terms to be settled. Business owners know the strain of managing cash flow but often miss the impact that collecting debtor invoices has. In our experience, the top driver of cash flow shortages among clients is overdue invoices.
The picture it gives is of a reasonably stable length of time, 35 days, for invoices to be paid. Except that it takes longer in January (38.67 days) and February (37.22 days). These three or four extra days waiting for the money to come in can be surprisingly tough on business cash flow, especially when you add to it to the impact of Christmas holiday closures, with less work and less invoicing being done.
So what can a small business do to avoid the Christmas cash-flow void?
Start chasing debtors now! As Christmas draws closer, the longer you wait to follow up with your debtors, the likelier you are to be put off, given empty promises of payment, and pushed out past Christmas. Get on to it earlier this year, for a less stressful and more relaxing Christmas.
Here are five tips for a better Christmas cash flow:
Online products like Xero let you send sales invoices, anytime, anywhere, on any device. We’ve heard many stories from people who’ve recently changed to Xero from paper or desktop accounting products telling us how much quicker doing their invoicing is, how much time they’re saving, and how much faster they’re getting paid.
Make sending out your invoices a priority:
Set a routine of getting your invoices out regularly and promptly. The longer you take to send them, the longer it’ll take to get the money in the bank.
Set a clear process for collecting money:
Make sure you have clear payment terms on your invoices and you offer simple ways for your customers to pay. The clearer your terms and your payment process, the easier it is for you, your accounts team and your customers to be on the same page.
Use automatic reminders:
Set Xero to automatically email reminders about invoices – it can be before or after the due date. It takes minutes to set up, saves you time, and gets money into your bank account sooner.
Communicate positively with an aim to save time:
Speaking to your customers positively when requesting money is essential if you want the best outcome. When you contact your customers, focus on the best way to resolve any payment problems. You could asking customers to confirm a payment date so you don’t bother them before that date, or offer payment plans for those that aren’t able to commit to a payment date.
Paul Meissner, a Xero partner, accountant and business advisor, adds a final tip. “When businesses make a real effort to complete work prior to the Christmas break, it can really assist with cash flow. Delivered work often means it can be billed. So not leaving work incomplete and unbilled over the Christmas break shortens the gap before you get paid.”
Vanessa Bamford is a Xero partner and the director of Vision Beyond Business, an accounting, bookkeeping and advisory firm in the Adelaide area.