We’ve all heard the numbers and statistics stating the majority of small businesses fail within the first few years. There are a multitude of reasons behind these entrepreneurs failing, but one of the most important factors can be cash flow. With it being so important for new and small businesses, the ability to control and keep cash flow on hand can mean life or death for entrepreneurs.
One big way small businesses can help keep their money close is avoiding bad debts and problem customers. Keeping a short lease on your money is key, and there are many ways to do that. Check out our top 7 ways below:
- Do Your Research: There are a few ways to do your research on a new customer. One is simply checking with industry contacts or other businesses on a new customer’s payment history. On the other end of the spectrum, paying for an online credit check can be well worth the cost in the long run.
- Start Small: When allowing customers to buy goods on credit, set a lower credit limit at first to test the waters on how they are with payments, and the increase their limit from there. It’s easy to increase credit limits for someone, but can be much harder to drop their limit once it’s set.
- Define Terms and Conditions: Be very clear and concise when drawing up your terms and conditions, and use a professional advisor if needed. Have all customers agree to these conditions and explain the ramifications if they are not followed. Having the terms and conditions on your website and included with each invoice or order can be helpful as well.
- Be Prompt: On all matters regarding your goods, money, or payment, be on the ball and proactive. Send invoices immediately following an order. Start chasing down payments as soon as they become due, via letters, emails, phone calls, or even in person if the customer is local. Resolve any product disputes or transaction issues with customers promptly as well. The sooner you address the problem, the smaller it becomes.
- Allow for Adjustments: Have a strategy on hand for if/when a debtor delays payment on a consistent basis. Putting their account on hold until it is cleared, increasing the prices you charge them, applying late fees, or cancelling their credit altogether can be used effectively. If all attempts to collect the debt fail, a collection agency can always step in and take over to get the debt paid.
- Communication: Open and continuous communication between your business and your customer can save a lot of time, money, hassle, and headaches. Regularly checking in with customers on satisfaction levels and friendly reminders of orders or payment can be surprisingly helpful in relationship building and prompt payment.
- Record Keeping: Keeping accurate records and balancing your books routinely are key in knowing where you and your customers are on payments. Many small businesses find it hard to set aside time to consistently keep their books up to date. Having an efficient database or accounting software can be a lifesaver.
The easiest way to lessen your bad debts is to be prepared. A lot can go wrong very quickly in a small business these days so remember: the best way to avoid disaster is to prepare for it.
Want more? Check out our Great Customer – Bad Debt blog post here.