We recently blogged about Crowdmix, the London-based start-up that went into administration. It’s a sad fact that many businesses fail within their first year. This can’t always be prevented: starting a business is tough. But there are certainly things you can do to avoid disaster.
Profit is important to all businesses, but don’t underestimate the importance of cash flow either.
It takes time to understand whether clients are trustworthy, and that means spotting signs that they may not pay. In the early days of running a business, it’s wise to credit check every new client to pick out any potential non-payers.
This will help ensure that your new client isn’t already a known bad payer and that they have the means to pay your invoices in full and on time. A credit report will give you a snapshot of the company finances and crucially, records of any County Court Judgments that may be registered against them.
Also don’t assume that large companies will pay on time, simply because they’re well established. Often, large businesses have much bigger finance departments than small businesses, so there are more hoops to jump through before you get paid. In these cases it pays to make sure you know if the client has any special requirements, like Purchase Order Numbers and the like, well in advance of issuing the invoice.
Having a contract is absolutely essential, even for relatively small projects. It’s the only way that you can get your client to commit to payment terms in black and white. It’s crucial that you can show, in writing, what the client agreed to, what they agreed to pay, and when they have to pay it.
Don’t be the freelancer with a huge, valuable contract and no paperwork to back it up. If your client decides not to pay you, you could be in for a lengthy and expensive fight.
Make it Easy to Get Paid
Business bank accounts are essential for all businesses, even if the law doesn’t technically require you to have one. A business account adds legitimacy, and it streamlines the process of getting paid.
In addition, add one or two digital payment services to your arsenal. PayPal, Stripe and GoCardless are all popular and secure options. Don’t be tempted to offer too many different services, since confusing people is counter-productive. Ask your customers how they prefer to pay, and try to cater to them if you can.
Make Credit Control a Priority
Cash flow is a notorious problem for all businesses, even if you plan well, it only takes one late payer to take a business down. It’s always wise to credit check a business before offering your services, and then repeat your credit check periodically through the life of the business relationship. Remember, when it comes to bad debts, prevention is always better than a cure.
A business that starts off paying well can soon slip behind with their payments, perhaps due to cash flow problems of their own. That can cause the dreaded domino effect, where it can’t pay its suppliers on time and so on.
Safe Collections and Experian have teamed up to offer 99 credit reports for £99, making credit checks simple and affordable for any new business or freelancer. For more information, don’t hesitate to email us, and our team will help you to take control of your cash flow.
Image "Credit Check" by CafeCredit.com is licensed under CC BY 2.0