How To Ensure You Get Paid On Time

How To Ensure You Get Paid On Time

A regular complaint we hear from our customers is they’re waiting on a delayed payment before they can make a big purchase like van racking. The fact is maintaining a positive cash flow is made harder by late payers - which is why we thought we’d share with you how we make sure we get paid on time.

Invoice Promptly

The first step to getting paid on time is to invoice promptly. This may sound blindingly obvious, but all too often we’ve found that the trades are slow to invoice because they’re “behind on the paperwork.”

Invoicing promptly sends a clear message to your customers that you expect to be paid in a timely manner. It also makes it much easier to proactively manage slow payers and to spot the early warning signs of a problem. Delay sending out invoices and you’re sending the message, whether intended or not, that you don’t mind when you get paid.

Being polite really does matter. A simple “please pay your invoice within X working days” and “thank you for your business” can increase the percentage of invoices that are paid by more than 5%. Here’s a sample wording you can use on your invoices:

“Thank you; we really appreciate your business. Please send payment within 7 days of the date of this invoice.”

Establish A Follow Up Procedure

The quicker you follow up on a missed payment, the better your chance of getting paid. Set up a system for flagging late payments and a standard procedure for contacting the customer or client when his or her payment is late.

Typically, such a procedure starts with a letter simply stating the bill is overdue and requesting the customer's immediate attention to the matter. It then moves through a series of collection letters expressing increasing concern. If there is no response to these letters, you are left with choosing between writing off the bill as a bad debt, asking a litigation solicitor to deal with the matter on your behalf or turning the account over to a collection agency.

Here’s what we recommend you do.

Step 1

Approximately one week after issuing the invoice and prior to the expected payment date, contact your customer by phone or email to confirm they’ve received your invoice and they have no issues with the service you provided.

Step 2

If no payment has been made by the day after payment is due, send a statement. A statement is simply a statement of the account, it’s not a request for payment. However if you do this from an accounting software like Xero, you’ll have an automatic record of having done so.

Step 3

At seven days overdue, send a reminder letter of email to your customer requesting payment. If you’re using an accounting software like Xero, you can set it up to send automatic reminders.

Step 4

At ten days overdue, bearing in mind the customer has been sent a statement and reminder letter, call the customer to query why the invoice hasn’t been paid. Make a note in your diary of any promise of payment.

Step 5

At fourteen days overdue, send a second stronger letter requesting payment and warning of late payment charges should the account not be settled within seven days.

Step 6

Call the customer regularly between day fifteen and day thirty to find out why payment has been delayed. If you are in the process of carrying out work for the customer, you will want to discuss stopping work due to non-payment.

Keep notes of any conversations with the customer, including voicemail messages left. This will help you further down the line should a promised payment not arrive, as you’ll have a record of broken promises.

Step 7

If after thirty days payment has still not been received, you’ll have to weigh up carefully the risks involved in continuing to pay for services that are as yet unpaid. Halting the supply of services may feel awkward if you’ve built up a strong personal relationship with a customer. But this is business and has to be treated as such.

Step 8

At thirty days, bearing in mind the multiple efforts you’ve made to secure payment, send the customer a final notice, together with late payment costs and interest charges, and ask for payment within seventy-two hours.

If payment still isn’t received, place the account in the hands of a debt collection agency.

You may also find these articles helpful:

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The 5 Finance Reports Every Trades Business Owner Needs

The 5 Reports Every Trades Business Owner Needs

We've lost count of the number of tradespeople we’ve talked to who think their annual accounts give them enough financial information to run their business. The fact is your annual accounts are a historical snapshot of your business at a particular point in time. They don’t tell you about the future.

If you want to have a successful trades business, there are no two ways about it. You’ve got to become proficient at managing the finances. It’s either that, or crash and burn. Put simply you've got to be able to read and understand your financial dashboard.

What exactly is a  financial dashboard?

Think about the dashboard in your van. It has a speedometer, a petrol gauge and an oil pressure gauge. These three instruments measure the vital signs of your van. They tell you how fast you’re going, how must fuel you’ve got left in the tank and the state of your engine. If any of these instruments were to break down (or you didn’t know how to read them) pretty soon you’d find yourself with a ticket for speeding, stalling or blowing a gasket.

A financial dashboard is just like the dashboard in your van, and is made up of these five reports:

Annual and Monthly Budget: This is kind of like a pre-programmed sat nav. It’s forward looking, projecting where you plan to go. If you don’t have a decent budget, you might as well forget starting a journey in your van.

Monthly Profit and Loss Statement: Once you’ve started your trip, are you staying on course? A profit and loss statement tracks your performance against the budget.

Weekly Cash Flow Forecast: Just like your annual accounts, your profit and loss statement is a lag measure. A rolling sixteen-week cash flow forecast gives you a vital lead measure. You take your opening cash balance, add your projected receipts, and deduct your projected payments. It functions just like sat nav, telling you what’s coming up, providing time for you to take another route if necessary.

Profit and Loss Forecast: This is another important lead measure. A profit and loss forecast creates a forward-looking picture of your income and expenses. What’s great about a profit and loss forecast is you can play with different scenarios and see how they’ll impact the year.

Balance Sheet: Your balance sheet captures the overall health and financial strength of your business, telling you its net worth, what money you owe to your creditors and how much you are owed.

These five reports work together like the dashboard in your van. They help you to plan for the future growth of your business. Of these five reports, we’ve found the cash flow forecast to be the most helpful when it comes to tactical decision making. So much so that we make a point of updating our cash flow forecast every Monday morning to ensure that we’re maintaining our cash levels.

These are the 5 financial reports we check routinely at Whitebox. Do you use any of these reports? Let us know in the comments box below.

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How You Can Achieve Your Financial Goals

How You Can Achieve Your Financial Goals

Last week, we wrote about how we’ve made finances stress free at Whitebox. Today we thought we’d share how we set about setting and achieving financial goals for the business.

One of the things we’ve noticed, through talking to our customers, is the money beliefs they hold. Beliefs like:

“It’s hard to make a stable and secure living as a trades person.”

“Financially stability and success is for other people, not me.”

We all have stories we tell ourselves about money. Sometimes they’re so deep rooted that we don’t even realise the ways they’re holding us back. When it comes to changing your money story, we’ve found it helps to get super specific about exactly how much you want to make, how much you’re currently making, and how you’re going to achieve your income goals.

This is how we go about setting our finance goals. We hope this inspires and encourages you to go for your goals too.

1. Get Specific

First, we get super specific about how much we’d like to make over the next 12 months, both to have enough to live on personally - and to maintain and grow the business.  

Monthly Living Costs: We pay ourselves a wage every month, so it’s the number we’ve decided is sufficient for our living costs multiplied by 12 months for the whole year. This amount covers the mortgage, bills, food and other day to day expenses.

Pension: We set aside a sum to pay into our pension pot because we’re not keen on the idea of an impoverished old age. BTW, did you know that if you’re a basic rate tax payer, for every £100 you pay into your pension pot, you’ll get an extra £25 from tax relief?

Taxes and National Insurance: This is how much you’ll need to set aside for payments to the taxman. We recommend you set up a separate savings account for taxes.

Savings: How much you’d like to add to our savings account that year. We transfer a small amount every single week into a separate “rainy day” savings account. £10, £20, £50, you’d be surprised how quickly it builds up.

Business Expenses: What we need to pay the staff, rent and keep the digital lights on - from web hosting to the software we use.

VAT: We recommend you aside an amount into a dedicated savings account every week. See our recent article on Stress Free Business Finances.

For savings and pensions, Denyse has what she calls core and stretch goals. Her core goal is the minimum amount of money she sets aside each month, come what may. Her stretch goal is one she’d like to hit this year if possible during the course of the year.

2. Add It All Up

Add together each of these sections and you’ll come out with two numbers. First, your core money goal for the year, and second your stretch money goal for the year which includes the extra amount for savings, pensions and any one-off projects you have planned.

Because we like to be super organised, we also have a baseline goal. This is the amount – less savings and pension – that we absolutely have to make this year to keep a roof over our head, feed us, pay the bills and the taxman. This is what’s called your break-even point.

3. Making It Happen

We start off by outlining each of our income streams in the business and work out our sales projections are for each. Mark calls this crystal ball gazing! Something to note here is that we don’t just pluck numbers out of thin air. We draw on our historical sales information. But we also forecast for growth, taking account of how the business is doing.

This gives us specific numbers of how many van racking systems we need to sell every month. For you, this might be number of new boilers installed or rewires completed. Then we track these numbers every week, month and quarter throughout the year. 

Just because we’ve set our income goal doesn’t mean we’re going to reach it. We have to take focused and consistent action every single day to support the business to thrive financially. These actions are set out in our sales and marketing plan – whether that’s posting and engaging in social media, writing an article like this, shooting a video or following up with prospects and customers.

This is how we go about achieving our financial goals. We’d love to hear your tips and suggestions. Please do let us know in the comments box below.

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Stress Free Business Finances

Stress Free Business Finances

A report by business innovation charity Nesta revealed that 42% of business owners say dealing with finances is the most stressful aspect of running a company. And a staggering 17% added that the stress has made them unwell.

This is in line with what many of our customers say to us. Making sure they get paid on time and keeping on top of the paperwork (by which they mean finances) often keeps them up late at night.

We’ve been there ourselves and it’s not fun. Which is why. over the years, we’ve developed a few habits which we’ve found make for stress free business finances.

Here’s what works for us.

1. We Update Our Cash Flow Forecast Weekly

First thing Monday morning, Denyse updates our cash flow forecast with the results from the previous week. She then looks at our sales projections to check if they’re still in line with our forecast or whether she needs to make any adjustments.

For example, if a customer wants to order a van racking system and has had to delay the purchase for a week while s/he waits for a late payment from customer, Denyse adjusts the cash flow forecast to take account of this.

2. We Check Our Bank Account Daily

We check our bank account once a day to make sure everything is as it should be i.e. no unexpected payments and monies have been received as promised. Because we update our cash flow forecast weekly, there are rarely any surprises.

3. We Make Sure Cash Never Dips Below A Certain Level

You know that old saying cash is king? Our aim is to have six months’ worth of running costs in the bank. We’re not there yet. (Few businesses are). But as we work towards achieving this goal, we make sure the amount of cash in the bank never dips below a certain level. As our turnover increases, so does the amount of cash we maintain in the bank.

4. We Pay Suppliers On A Set Day, Weekly

When Denyse does our weekly cash flow forecast, she also thinks about which bills we’re going to pay that week, and whether we need to defer any to the following week because, for example, we’re waiting on late payments.

5. We Know Exactly How Much We Owe Our Suppliers

Mark’s wife, Sophie, keeps our books up to date so we know exactly how much we owe our suppliers at any one time. It wasn’t like this until we brought in Sophie. We make sure we’ve made provision in our cash flow forecast to pay our suppliers when the payment date falls due.

6. We Set Aside Money For VAT Every Week

Every week, we make sure we’ve made provision for paying the VAT when it falls due. Some of our customers find it helpful to transfer the VAT element of their income into a separate bank account, set up specifically for this purpose. Then when the VAT bill falls due, they use the funds they’ve accrued in their “VAT account. to pay the bill.

7. We Use Receipt Bank To Record Receipts

Receipt Bank is a handy app which we use to photograph receipts. These are then, as if by magic, stored digitally and uploaded to our accounting software. Many of our customers use this app too. This has put an end to scrabbling around for lost receipts when it’s time to prepare the annual accounts.

This is how we’ve made business finances stress free. We’d love to hear your tips and suggestions. Let us know in the comments box below.

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