There’s no getting away from the fact that getting paid on time is an essential part of any successful and smooth-running business.
In the current economic climate, keeping cashflow in order and following up religiously on late payments, for many businesses is proving to be a big part of their day-to-day responsibilities. That said, during tough times business owners often hold back when setting payment terms that are favourable to them, in the fear that they might offend, alienate or even lose their valuable customers. For some businesses, this ends up as commercial suicide.
When it comes to setting payment terms, the message should be clear: it’s your house; make sure others play by your rules.
When you set out your payment terms, it’s essential that they’re clear and unambiguous for your customers. It may well be that you decide to apply an “across the board” payment structure for all your customers, or you might choose to lengthen your payment terms to help you secure a high margin deal, or indeed shorten them to compensate yourself for a lower margin deal. Some business owners may even incentivise their customers to settle up early by offering a sliding scale of discounts or some other, more creative way of encouraging prompt payment. Either way, it’s essential that both your customers and your accounts department know exactly where they stand.
Once you’ve established your approach to payment terms it’s a case of getting all your small business bookkeeping ducks in a row to make sure that invoices are raised at the appropriate time, payments are scheduled accordingly and chased up timeously if they’re not received. As part of this process, making sure that your invoices are accurate will help avoid unnecessary delays in payment that emanate from confusion or misunderstanding. While you’re likely to already have your invoices set up in Xero, it’s important to make sure that they contain all the required information and most importantly that they clearly state payment due date so there is no confusion.
Xero allows you to customise invoice dates, payment terms and chase ups for payment easily and effectively, freeing you of the need to manually record or diary different customers arrangements. This part of the Xero system allows you to be as creative as you need to be to secure deals and make sure your cashflow flows as it should, without creating any administrative nightmare. It may well be that you decide to close a deal on the basis that you’ll give it priority if the customer agrees to immediate payment on completion. If this is the case, you can use the Xero tool to record this agreement, making sure everyone up and down the line is clear on what’s been agreed. Alternatively, if you’ve been bitten by a client who was slow to pay in the past and decide to ask for a deposit, that can be allowed for too.
If you’re interested in finding out more about setting your own payment terms on Xero, why not contact us on 0800 018 0590 and we can chat you through the possibilities.
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