You don’t start a business to chase money
Why does one start a business? To make money of course.
But it’s also because you know you’re good at something and you want to offer these services to your community, country or even globally. And in return you receive a remuneration, most commonly in the form of money. But if you’re finding yourself worrying more about the money side of things, like chasing payments, doing court rounds because of a dispute etc., then there is something wrong in your invoicing methods/payments receivables department of the business which is preventing you from doing that very business.
Human Nature
I like to associate anything and everything to human nature. Human nature has been the driver for nearly all major events in history. And business is no different. It is constantly being moulded by how we as humans interact with other humans in trade. Yes, ideally we’d like our clients to pay as soon as they’re given an invoice, but we along with our clients are human, and no human is perfect. We each have our own flaws. So it’s not necessarily always the client at fault when an invoice isn’t paid on time. It could be something wrong in the business receivables.
Poor cash-flow management was the reason given by 41% of companies that went insolvent in 2013-2014
What went wrong?
According to the statistics from the 2013-2014 ASIC report on corporate insolvencies the following was highlighted:
- 81% of the companies that were insolvent in this period were SMEs.
- 23% of those businesses were from the construction industry
- 43% of these companies had assets worth $250,000.00 or less
- 65% of the companies had an estimated deficiency of $500,000.00 or less. Only around 11 cents were recovered for every dollar
- Poor cash-flow management was the reason given by 41% of these companies
This report can be found here – http://asic.gov.au/about-asic/media-centre/find-a-media-release/2014-releases/14-254mr-asic-reports-on-corporate-insolvencies-2013-14/
The bigger issue
The last point in the summary is the one I’d like to talk about. Nearly 41% of the companies failed last year because they had less money coming in than they had going out i.e had poor cash-flow management. Nearly 33% of the companies traded at a loss. For some reason these businesses were not able to convert their outstanding invoices into money and on time leading to cash flow problems. So it comes as no surprise that these companies failed because if a business is having cash-flow problems, then sustainability is not possible. Sooner or later, money dries up and a business is no longer able to pay it’s employees, suppliers, government etc. And it ends up as a statistic in an insolvency report.
As mentioned above, business takes place between humans. And hence flaws on either side can contribute to the problem of poor business cash-flow. As a business owner, you can only control your own flaws, and hence finding out ways to improve the process of converting invoices into money is a good place to start. Here are some good examples below on the topic which I’d recommend:
http://www.lifehacker.com.au/2014/12/how-to-ensure-you-get-paid-as-a-freelancer/#comment-1975658
http://www.flyingsolo.com.au/forums/get-productive/8513-late-payment-fees-2.html#post207883
To summarise, the articles recommend businesses to do credit checks against their clients, practice discipline in the payment cycle, request a deposit or full payment upfront before starting the work etc. Only then will businesses be able to guarantee sustainability and growth. In my opinion, all these suggestions are quite good. They do put businesses in a good position and takes a lot of the money related worries out of the business thus giving more time to focus on improving the business service or product which is why the business was started.
Sorry.. No time for that
It’s good to be busy. But it’s not good to be busy spending time on things that can be done more efficiently. After finishing reading this article, put aside time everyday to note down how much time was spent calling up clients to chase payments that day. Do this for a month. At the end of the month, paint a picture where out of the many hours you spent doing your business, how much time was spent on chasing payments. If you see that you’re spending more time on the chasing of payments, then it’s worth taking a step back and looking into finding ways to improve your receivables process.
Start implementing some tips from the articles given above finding those you think will work best. I’d also recommend looking at our product: CheckVault. Over the past two years, we’ve helped so many businesses reduce the time they’ve spent chasing and worrying about payments and enabled them to convert their invoices into money in the bank. Try our savings estimator and see how much of the time and resources used in chasing invoices is costing your business, which can be saved.
Use your time wisely
Time is a limited resource. You probably can’t even completely remember how you came to where you are now. Most of the past seems to have passed so quickly and is a blur. But one thing’s for sure, one day you don’t want to look back at your life and find that you’ve spent most of your time chasing money that was rightfully yours and had the right methods been implemented, that time you could have spent on yourself and your life would have been completely different. If that’s a frightening thought but it’s never too late to make a change.
Best wishes.