Good cash flow is essential to the continued success of your new business – here are some tips to improve it

Poor cash flow is one of the biggest reasons that companies cease trading. Here are 10 ways to avoid and chase late payments to help maintain a steady cash flow.

Know your customers – run online credit checks on new and existing customers

You may also wish to charge new customers up front until you’ve built up a long-term relationship with them.

Be clear about your payment terms – include them on every invoice along with late payment penalties

If you communicate from the beginning about when you expect to be paid, you’re less likely to encounter problems and excuses when the time comes.

Avoid cheques – encourage electronic transfer or Direct Debit to improve cash flow

There are a number of fast, electronic payment methods available today – make it clear that you prefer these and only accept cheques from existing, trusted customers or ban them outright.

Choose the right people for your credit control team

If you’re at the stage in your business where you can hire other people to work alongside you, it’s well worth looking into hiring someone dedicated to the financial side of your company.

Make a courtesy call to customers before payment is due to iron out any problems or issues

Good communication is key to improving your cash flow.

Start chasing late payments as soon as they are a day or two overdue

Don’t let your customers think they can relax if they don’t pay you promptly.

Let your customers know that you will claim interest on late payments

Again, clear communication from the start about penalties for late payments can help you avoid them altogether.

If a customer has a large bill you can offer to accept payment in two or more instalments

This will mean you have cash coming in at regular intervals and make it more likely your customer will pay on time due to the smaller payment required.

If you haven’t received payment, don’t let the problem escalate, take action

Contact the customer on a regular basis to remind them payment is due and begin to charge the interest and penalties for late payment you should have already communicated to them.

As a last resort, use a debt collection agency

There are organisations out there dedicated to helping businesses claim the money they are owed. These should only be used when you have exhausted all other avenues.

Businesses are often reluctant to appear heavy handed when debt chasing as they fear that they will lose future custom if they are too aggressive when chasing late payment, but it is important to keep control of the situation so as to recognise a problem and deal with it at an early stage.

Do not hesitate to stop supplying goods to a customer if payment is delayed beyond the usual terms or offer them a cash on delivery basis until the account is brought up to date, do not let a small debt turn into a large one.

The post “How to Improve Your Cash Flow” first appeared on UKPLC.com in April 2014. It features tips from Gareth Underwood at Sage Software.