We’re quickly approaching the end of the year, and for many businesses, it’s a boom season. Consumers spend more during the last quarter than they do for the rest of the year, and that’s great for business. Unfortunately, it’s not so good for cash flow management.
Your debtors are likely to be channeling funds elsewhere and may ‘forget’ to keep up with their payments to you. After all, it’s much more fun to buy presents and pay for fancy holidays than it is to pay old debts. And it’s easier to spend lavishly in attempts to impress relatives you only see once a year.
The downside of end-year spending is that the average consumer ends up racking, even more, debt and that only makes it harder for them to pay yours. The bulk of their expenditure will be in the form of credit cards, and the interest rates on card pile up quite high.
Lowering their credit worth will directly interfere with their ability to pay you. And naturally, consumers will prioritize their card payments, since it allows them to borrow more while paying what they owe you is unlikely to offer them any further benefit, primarily since they have already consumed the product or service they purchased from you.
Ask customers to pay in advance
One of the ways to avoid hassles after the Christmas festivities is to get your cash before the season begins. Over the next month or so, try to get customers to pay for the bulk of their purchases in advance. If they give you 60% or more before they start their Christmas spending, there’ll be a smaller amount for you to chase, so it’ll be easier for them to pay it off.
Another suggestion is to develop a payment plan that has its last installment in November. If you apply this to all customers, you’re unlikely to be left chasing money in December, or worse, in January. For services that you offer during the November-December window, get at least 50% payment in advance, since you’re unlikely to see another dollar until February.
If you’re unsure about how much to ask for in advance, calculate your cost price. This way, the cash you use to buy the product or prepare the service comes from the client. If you have to cover production costs out of pocket, you’ll be going at a loss by dipping into your reserves. And since consumers are unlikely to pay over Christmas, you’ll be left in the red.
Let them pay less if they pay early
Another smart idea is to offer a significant discount for full payments. Any reasonable business prices their products or services with profit in mind, so they are fully aware of how low they can go before they start to lose cash. Use these calculations to figure out a discount that won’t dent your pocket too far, then offer it to customers who pay the full amount.
This will encourage customers to pay upfront because they see it as a distinct saving. It also rescues you from the hassle of knocking doors on Christmas day or demanding cash over the holidays. You can even bundle the discount with bonus services, giveaways, and branded merchandise to make the offer more attractive.
As the year ends, look at your payment terms, make necessary adjustments, and let your customers know. Since a new calendar year is a reasonable time to update policies, review anything that needs adjusting and give your customers the information. If they know they’ll have a shorter window or higher rates come next year, they’ll pay long before the 31st.
Consider charging a late fee
As the year winds down, review your overall business strategy, with a particular focus on debtors. Is there anything you can do to make invoicing and collection easier? Those are the areas you need to adjust. It could be as simple as reducing the payment period from 30 days to 14 days. You can also implement a late fee for delayed payments to encourage promptness.
As you follow up debtors, phone calls are more effective than emails and memos. Follow the legal guidelines of not more than three calls a week between 7.30 a.m. and 9.00 p.m. On weekends; the phone window is 9.00 a.m. to 9.00 p.m. The reason is that phone calls are more immediate than written communication, so it’s more likely to yield results.
Set up a debt collection template that your team can follow. This way, it’ll be easier to deal with clients who aren’t eager to pay. Take your team through regular training, complete with simulated conversations and scripted phone calls. It will make debt-collectors less anxious and could end up teaching them the kind of persuasion skills that work with clients.