The #1 cash flow problem for SMEs - late debtor payments

The #1 cash flow problem for SMEs

Business Finance, News

Cash flow problems are the reason that seven out of ten SMEs feel like they might go out of business. But the #1 cash flow problem for SMEs? Late debtor payments. For a company that relies on this income to survive, it’s challenging when it doesn’t arrive on time. So what can you do to improve small business cash flow? Here are some suggestions.

Cash on delivery

The simplest option is to not offer any payment terms at all and collect the amount right after the goods or services are provided. As this can appear to be very extreme for some debtors, especially if your competitors don’t expect this, you may face some pushback. For new clients, however, this is not an unreasonable request. Suggest that for the first 3-6 months of trading together, they pay on delivery. The encouragement would be that at the end of that period, you will then negotiate payment terms.

Staggered payments

If COD is not an option for your clients, you could introduce a staggered payment system. This works particularly well for services that get provided over a longer-term. Ask for 25 – 50% as a deposit, another instalment midway and one more at the end. That way you’re not waiting until the last minute for the final amount.

Be on top of your invoicing

It’s possible that you might be contributing to your cash flow problem. If you’re not invoicing your clients as soon as you provide the service or the goods get purchased, you’re delaying the payment process. Consider investing in an automated invoicing system that generates bills on the spot. Your customers will get used to receiving them straight away and become familiar with your business terms.

Build relationships

Having a solid relationship with your debtors will benefit your business in many ways. If your client feels that you care about them and their company, they may feel more like paying you first, ahead of other creditors. It’s much better to be at the top of their list than the bottom. Never underestimate the emotional connection you have with them.

Late debtor payments – where to find out more

Read a case study about how we helped an SME secure cash for expansion or get in touch to discuss how we may be able to help you improve your cash flow.

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