Keeping track of cash flow is one of the tasks that business owners should never neglect or ignore, because overlooking the smallest detail can have dramatic financial consequences for months to come. Of course, the entire topic of cash flow is quite complex and involves many aspects, but coping with payments and debt is one of the most important ones. There are many schools of thought as to which cash flow management approach is the best, but the biggest dilemmas revolve around debts and coping with slow payers in general. While some say that taking this task upon yourself is the safest course of action, modern entrepreneurs strongly support debt collecting and credit control companies.
The problem with chasing payments yourself
The concept of a company that doesn’t have to deal with slow or late payments isn’t exactly anchored in reality. No matter what you sell or where, payment problems are bound to appear at one point, so you should be prepared to deal with this situation. But, you should approach the problem the smart way. Many business owners feel that they should chase payments themselves, contacting late payers to get their money back, but this is rarely a successful endeavour. Apart from the fact that you might not even succeed in reaching the late payer, you could waste value time, time which you should be spending optimising processes and developing growth. Instead, you should let an expert deal with this problem.
If you choose to chase down payments yourself, you will discover that the process has its particularities, which are hard to grasp is you’re not aware of the professional practices. You have to send a lot of formal correspondence, deal with rejection, be persuasive without losing your cool. At the end of the day, you will discover that it’s much more productive to let a professional company deal with this aspect.
Why you shouldn’t wait for more than 30 days to recover debts
The problem with a negative cash flow is that it can quickly spiral out of control. The more you wait for debts to pile up, the more your finances have to suffer and, before you know it, you could run out of cash.
Whether it’s because of comfort or for fear not to anger their clients, many business owners decide to let things go and postpone debt recovery. However, that is not what a professional credit control company would recommend. In fact, the more you wait, the harder it becomes to obtain the money you are due. Ideally, you should get in touch with an expert if the client doesn’t pay in 30 days past the due date. If more time passes, the chances to recover the money are lower, and, needless to say, your cash flow balance will have to suffer.
You can reduce the odds of dealing with debts by conducting a thorough credit check on all your clients and thus avoid those who have bad credit.
Types of clients you should deal with quickly
Every company needs clients to survive, but once you start noticing that these two types of clients, you have to be cautious.
- Slow payers – these are clients who pay for your products and services, but are always late and you have to call them all the time to remind them. Although they don’t necessarily harm your business, they can affect your cash flow in the long run.
- Bad payers – these are clients who delay payments for long periods of time or do not pay at all. They cause the biggest damage and if you have to deal with too many of them, your business will have to suffer. Ideally, bad payers should be investigated and avoided with the help of credit control companies.
Most importantly, both these types of clients should be treated with firmness. State your terms clearly from the very beginning and don’t let slow and bad payers control your business.
Cash flow problems and new businesses
According to the Small Business Administration, cash flow problems are extremely dangerous for start-ups. In fact, they are one of the main reasons they fail. This means that unless you take measures to keep cash flow in check, your business could be affected sooner than you think. After all, a small company doesn’t have the same resources and back-ups as a corporation, so you need to exercise extra caution.
