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Do you make it easy for clients to pay you? or have to chase payment!
Slow payment is major issue for small business.
Research shows that British SMEs are having to wait an average of 41 days longer than their original agreed payment terms before invoices are paid. (source: BACS)
To get paid faster why not include a pay now button on your invoice
Hone your survival techniques
For many businesses the last few years have been really tough – and the next couple may be just as challenging. Although we are, in theory, out of recession the financial difficulties which come from an economic downturn will continue to be felt way into the future.
If you own a service business there are things you can do to make yourself as resilient as possible and I include my take on the most important ones below:
In a service company the level of customer spend can be quite high. For this reason it is vital that you review the level of credit you are prepared to give clients and stick to it. My payment terms require that clients pay either by monthly standing order or on date of invoice. Even if they don’t pay immediately at least I can chase from the earliest possible point.
Ensure you invoice promptly after work is completed, and, if the job spans several months, agree stage payments with your client so they don’t owe you more than 1 months worth of work.
Bare in mind that none of us really knows what is going on in another company. A seemingly sound company can be on the verge of collapse due to cash flow problems. Credit checking services can help you assess the credit worthiness of a business, but remember their information is out of date to some degree and they don’t pick up the full picture. The only way to ensure you don’t get caught out is to collect the money owed to you as quickly as possible.
Remember, even the banks are reluctant to be banks at the moment – so don’t fall into the trap of acting like one!
A key way to survive the recession is to provide the BEST service you can and be as close to your customers as possible. I see many service providers who think they can get away with average service and who assume clients will stick with them regardless. This is an arrogant assumption which will lead them, quite rightly, to lose good clients to much more customer orientated businesses.
For any business, but particularly for service companies, the relationship you have with your clients is king. A client who knows you well, and believes you are giving him the best, most focussed service available, is unlikely to shop elsewhere, even if he has the possibility of getting the service ‘cheaper’.
Build your referral network
We all know that people buy from people. You are much more likely to engage a supplier who has been recommended to you by a trusted advisor/contact than one you have met fleetingly at a networking event.
For this reason I think it is important to build up a network of people around you who:
– although they are not competitors to you, have the same types of customers as you do.
– understand exactly who an ideal client is for you so they can spot one when they meet them
– understand exactly what you do and the problems you solve for your clients
– are people you would be happy to refer to your contacts so the relationship is mutually rewarding
If you have a strong network you can be much more focussed in your marketing and will be much more likely to get the type of new clients you need.
At the end of the day those businesses which will remain standing will be stronger than they were before the recession, because they will have grasped exactly what makes a great business. The prize for getting it right is not only survival, but the opportunity to achieve great heights once business becomes easier again.
Would your Suppliers like to be paid faster?
Yes of course they would, silly question, everyone wants to be paid faster but how can it be done?
Santander may have the answer, they are offering a facility to SME’s called Supplier Payments and its part of the Funding for Lending Scheme.
Supply Chain Finance has been around for a while, this an extract from an article in the Telegraph in October 2012
Supply-chain finance, which is sometimes known as “reverse factoring”, allows big businesses to notify a bank as soon as a supplier’s invoice has been approved. The bank, armed with the assurance the bill will be paid, will then extend a full, immediate advance of the bill to the supplier at a low interest rate.
The Prime Minister hailed the technique as “win-win” because large companies get greater protection from small suppliers going bust, while the small business avoids having to wait for payment and, since the invoice is approved, avoids any risk of non-payment.
Most of the main banks have solutions for large businesses but it isn’t normally available to SME’s.
Is this an option for your suppliers?
The missed opportunity of Self Billing in e commerce
I think e commerce and EDI has focused too much on billing clients and consumers (mainly B2C rather that B2B) and not enough on improving the efficiency of processing supplier invoices.
According to research and analysis group, Gartner, typically the cost of processing an invoice in the UK averages between £4 and £25, and in some cases even up to £50, per individual invoice.
You can check the costs for yourself using pay streams calculator.
A typical purchase invoice goes though these stages:
- Its checked against the purchase order
- Its entered as unauthorised to the accounting system
- Its copied and sent to the manager to check the goods were received and were in good order
- The manager signs the invoice off
- Its status is changed to approved or in query
- Queries are sent to the supplier
- Authorised invoices are scheduled for payment
- Payment is made with a remittance advice
- Supplier statements are reconciled to the accounts system
The more suppliers you have and the bigger the volume of either invoices or transactions on invoices, the more complicated and long winded the process becomes.
Although all invoices contain the same basic information they are all formatted and laid out differently.
In some systems invoices are scanned and given a bar code to help index them to accounting system entries.
But it seems to me that many businesses have overlooked what should be a simple solution, Self Billing.
With Self Billing you generate the tax invoice for your supplier and send it to them with the payment.
The following is an extract from HMRC Self-billing:
Putting in place a self-billing arrangement with your suppliers can bring certain advantages for your business:
- it can save time and money – you can send self-billed invoices electronically so long as you can set up suitable systems
- purchase invoices are produced to a standard format, making life easier for your accounts department
- you retain control of how much you’re invoiced for – this can be helpful if your business is responsible for determining the value of the goods or services it receives
- flexibility – you can outsource the production of the self-billing invoices to a third party if you want to
Your suppliers don’t have to be based just in the UK. You can self-bill businesses in other EU countries or in countries outside the EU.
Advantages for suppliers
If you’re a supplier, entering into a self-billing agreement with your customers can be helpful for your business because:
- your customer is responsible for making sure that the VAT details on the invoices are correct
- as part of the agreement with your customer you may be able to specify when you’ll receive payment – this can help with your cash flow
Self billing has been used by the Construction Industry for many years, in fact I created a Self billing system when I worked at Rollalong in 1994, the key issues are:
- Getting suppliers to agree to join the self billing scheme
- Getting approval from HMRC
- Keeping your VAT registration records up to date
But the cost and time savings are significant, the whole process changes and could become:
- Purchase Order Sent
- Goods received and matched my the manager
- Value of Goods received entered to accounting system – this could be automated on matching
- Payment made and remittance changed to Self billing invoice
The number of queries are reduced because you aren’t invoiced for things you haven’t had, there is no need to copy and distribute invoices for sign off as this is replaced with stronger goods inward systems.
Why aren’t more businesses adopting self billing?
Cash is King!
Cash is king! and managing it properly is one of the best ways of ensuring your business flourishes. However, many small business owners find it a real challenge to chase customers who are late paying – even though not doing so leaves them in a really tight situation with the bank.
A phrase we hear often is, “They’re a really good customer, so I don’t want to annoy them by chasing for payment”. Let’s just analyse that sentence for a minute. Why are these customers good for your business? Because they allow you to do lots of work for free? Surely, a good customer is one who appreciates your efforts and is happy to pay because they value you. If you have done the work you agreed with your customer, to the level they expected, why should they not pay the agreed price in the agreed time period?
So don’t be shy about collecting YOUR money.
Other problems we see regularly are:
– Not setting payment terms up front
If you have not agreed when the customer should pay BEFORE the work is done, you will struggle to collect the money in a reasonable time frame. Make sure your terms of engagement/purchase confirmation clearly state when you expect to be paid.
– Setting unnecessarily long payment terms
Don’t assume that you have to offer customers 30 or 60 day payment terms. Start from a position of offering zero payment terms and only offer extended terms if there is a commercial advantage in doing so. Bear in mind that even if you offer 30 day terms you will most probably be paid later than that. As you don’t know the financial position of all your customers the only safe money is the money in your bank account.
– Not sending invoices out promptly
If you do not send out your invoices as soon as the work is complete, you automatically build a lag before you receive payment. Invoicing is a chore, but regular invoicing is vital to achieving financial stability.
The most common reason small businesses fail is because they run out of cash.
The most common reason they run out of cash is because they do not collect the money they are owed quickly enough, or allow debts to go bad.
Make sure you business succeeds by being cash collection savvy.
10 ways to get paid faster
Late payment kills businesses, it’s a fact.
Latest research shows that British SMEs are having to wait an average of 41 days longer than their original agreed payment terms before invoices are paid. (source: BACS)
So what can you do to get paid faster?
- Get payment upfront – It might sound obvious but do you ask for payment with order? or deposits? or to be paid on delivery?
- Get Stage Payments – on projects agree stages and collect payment before you do the next stage
- Raise the Invoice quickly – as soon as you can bill the client send out the invoice
- Agree Terms of Business and Payment Terms before you start any work
- Make sure you know who to bill and who to chase for payment
- Make your invoice stand out, use bright colours and send a copy by Post and E Mail
- Offer multiple payment methods – Credit Card, BACS, Cheques, PayPal – make it easy for your client to pay you
- Offer a discount for prompt payment
- Charge interest for late payment
- Deal with any disputes quickly
VAT Simplified Invoices
HMRC have released an update this month to their notice on Keeping VAT records. One of these changes relates to VAT simplified invoices which were introduced earlier this year as part of the simplification and harmonisation of VAT rules in the EU. Previously only retailers were exempt from providing full VAT invoices to unregistered businesses.
However the changes mean that any business issuing VAT invoices for £250 or less (including VAT) can issue simplified invoices.
What to include in a simplified invoice:
Your name, address and VAT registration number
The time of supply (date)
A description which identifies the goods or services supplied
The each VAT rate charged, the amount of VAT charged.
How does a simplified invoice differ from a full VAT invoice:
In addition, a full VAT invoice must include:
A sequential number based on one or more series which uniquely identify the document
The date of issue (if different from the time of supply)
The name and address of the person to whom the goods or services are supplied
For each description, the quantity of the goods or the extent of the services, and the rate of VAT and the amount payable, excluding VAT, expressed in any currency
The gross total amount payable, excluding VAT, expressed in any currency
The rate of any cash discount offered
The total amount of VAT chargeable, expressed in sterling
The unit price
The reason for any zero rate of exemption.
VAT invoices over £250
If issuing VAT invoices over £250, a full invoice must still be issued or a modified VAT invoice showing VAT inclusive rather VAT exclusive values.
Rebecca Taylor ACMA
20 ways to improve cash flow
Cash is vital to you and your business, lack of cash kills businesses.
So how can you improve cash flow:
- Prepare a detailed cash flow forecast, schedule your direct debits and standing orders, knowing how much cash you need and when will help you focus on where the cash will come from
- Invoice your clients as soon as you can, often small businesses invoice late and this just lengthens the time it will take to collect payment
- Get stage payments on large contracts
- Negotiate payment terms with your suppliers, try to at least match the client payment terms with the supplier terms
- If you are able to spread payments do it, for example, most insurance companies will offer you that chance to spread the payments over 10 months
- Adopt ‘just in time’ for stock items, don’t carry more stock than you need to
- Pay sales commissions only after the client has paid
- Change weekly payrolls to monthly where possible
- Sell assets you don’t need
- Sell obsolete and slow moving stock
- Consider paying mileage allowances rather than owning company cars
- Chase your debts
- Get a good credit rating as it will help you negotiate better supplier terms
- File your accounts and tax returns on time to avoid penalties
- Credit check your clients and agree terms based on their credit history and rating
- Diversify to smooth out seasonal trends
- Control your costs and reduce them where possible
- Make cash collection a KPI for your business
- Finance your fixed asset purchases
- Use Invoice Finance if your clients demand long terms
Do you accept Bitcoins? you could be missing out
Bitcoins (BTC) are a digital currency that can be bought and sold for cash.
Watch this Video which explains how Bitcoins work
Here is a link to a UK Bitcoin Exchange
According to Bitcoin the current market price is $109.74 and currently 50,000 transactions are done per day using bitcoins.
These rules are enforced collectively by the Bitcoin network.
- Hard limit of about 21 million bitcoins.
- Bitcoins are divisible to 8 decimal places, yielding a total of approximately 21×1014 currency units.
- Transactions are cheap and mostly free.
Before you dismiss it as another crazy idea, both the BBC and Institute of Directors have commented on Bitcoins, in this months (June 2013) Director Magazine, page 17, 60 Second Expert, the IoD gave an excellent summary of key points including this comment on system safety:
US security expert Dan Kaminsky referred to the system as an ‘alien technology’ written to a standard of quality you don’t see in most software.
Bitcoin transactions are secured by military grade cryptography. Nobody can make a payment on your behalf or charge you money without having a copy of your wallet.
Mobile payments can be made too…
Bitcoin on mobiles allows you to pay with a simple two step scan-and-pay. No need to swipe your card, type a PIN, or sign anything. And all you need to do to receive Bitcoin payments is to display the QR code in your Bitcoin wallet app and let your friend scan your mobile, or touch the two phones together (using NFC radio technology).
International payments are quick…
Bitcoins can be transferred from Africa to Canada in 10 minutes. There is no bank to slow down the process, level outrageous fees, or freeze the transfer. You can pay your neighbors the same way as you can pay a member of your family in another country.
So should you accept payment by bitcoins?