One of the major parts of getting your ducks in a row is tracking the money that comes in (or should come in) to your business. We’ll start with some best practices.
1. Invoice your customer as quickly as possible, like immediately.
When you sell an item or a service to a customer, don’t wait a month to send a bill. I’ve seen it over and over again with small businesses. Invoicing customers gets pushed aside to make room for doing the work to satisfy the next customer, or it gets buried on a crowded desk. The more time that passes between the delivery of goods and services and the invoice being generated, the more likely you are to NOT get paid, get paid late, or to send an inaccurate bill because time has passed and you don’t remember the order well, for example, an electrician forgetting to charge a homeowner for an additional repair while on the job.
A number of easy smart phone apps are available for on-the-go invoicing including QuickBooks Online and Xero, both of which are complete accounting solutions, and a host of other solutions that are invoicing only apps.
2. Whenever possible get paid before delivery of goods or services.
When you purchase an item online, it is commonplace to pay for that item at the time of purchase. The same goes for buying groceries. If you sell a product, it is usually possible to get paid at the point of sale. An exception might be a large ticket item that requires financing. If you sell a service that has a definite price tag, for example an oil change or a doctor’s office visit, getting paid at time of service is common practice.
It becomes more complicated if you are selling goods or services that vary depending on the problem or need being solved. A perfect example of this is setting a price for a tax return. How much does a tax return cost? It depends on how complicated the return is. Or if you are working in a repair business…How much does it cost to repair a car or a furnace? It depends on what’s broken.
One way around this is to develop package pricing for a typical sale. In the tax return example, a package price can be developed for a typical sole proprietor business return. An automobile repair shop can develop a package price for a typical brake job. Whenever you can systemize your pricing, you create an easier scenario for getting paid, and you take fear and anxiety away from your customer. It also allows an opportunity for upsells and extras.
Use technology for on-the-go payment collection. Take a look at companies like Paypal, Stripe, and Square.
3. Have a plan for granting credit.
If you do need to grant credit to a customer, for example, a payment plan or 30 day terms, be sure to decide ahead of actually granting credit, what your terms are and who will get credit with your business. Remember that a sale isn’t a sale until the money is in the bank. A promise to pay later has an impact on your cash flow now. Granting credit to people or businesses who may default on their payments puts your business at risk. Make sure you can afford to take that risk.
4. Have a plan for collecting cash from credit sales.
If you do decide to grant credit, be sure to have a plan in place to ensure the cash is collected as promised. When a customer’s bill is overdue, communicate quickly. The longer a bill goes unpaid, the less likely it is you will receive the cash. Tracking when an invoice is due is an important function of your system, whether it’s tracked in software or on your calendar. Without that critical piece of information, your cash sits in someone else’s pocket while you act as a bank for your customers.
With a solid revenue tracking system in place, you will be able to see how much your sales are this week/month/year. With that information you can begin to build data that will help you determine how much you need to do in sales to pay your bills (and take a paycheck), whether you are on track to do that, and to do comparisons between weeks/months/years to see how healthy your business is.
For more information on getting your ducks in a row, visit www.cashflowrollercoaster.com