After talking to many of my friends and assoicates that run small businesses two things are clear. All of us want regular payments from customers and all customers pay in different ways and time frames. This means tracking them and finding signs or problems is hard and time consuming.

After years of running businesses here is a summary of how I bring in the payments faster and more regular with some clear actions.

Invoices paid faster and more regular

Invoices paid faster and more regular

Being in business you will generally be dealing with business of roughly the same size. With only 50% of small business around after 5 years and only 30% around after 10 years, (small business trends failure rates of small businesses has more information) its critical to know what is going on before it effects you.

First, you need to list customers by profit and revenue. It will most likely become clear that 70% or 80% of your business comes from 20% of you customers. Why is the percentage always 80-20? If you know drop me a line. This is where you need to focus your time and effort, if you can bring in 80% of the revenue on time or earlier you’ll be doing well.

Action: ask your accountant or bookkeeper to rank your customers by revenue in the last year. Ordered by highest revenue customer first.

Once you know this you need to work out the average payment terms for each customer in the top percentage. What “top percentage” I hear you cry, start with 10% and see how much time this takes then increase it until you get to 70-80% of the revenue or ask your accountant for the top 80%. Your accountanting package will be able to provide this report.

Action: ask your accountant or bookkeeper to draw up the list of average payment terms for the last 12 months and the last 3 months. The payment term is the time from when you delivered the invoice to when the full amount was paid.

As a business you’ll probably know by now, that unless you are a retail or pay immediately service, terms of payments are just a guide and late payment penalties just annoy customers. There is an acceptable payment period that each customer has. This is the report you have just created.
Now four easy steps to get your invoices paid more regular and faster:-

  • Communicate, communicate to the top 20% regularly. Deliberately written twice as its such a key point. Monitor the top 20% of customers and their payment terms.When a customer reaches 60-70% of their payment term, for example: if company ABC normally pays within 30 days when they get to 20 days phone them. “Hi Jane, I’m just checking you received my invoice and are still ok to pay and have no questions about it.”

    Then follow the conversation with, “when do you think you’ll likely to get to pay it?” or “have you included it in the next payment run, and when would that be?”.  This is where you will hear any complaints or delays to payments, the first red flag.

    Ring again when the customer is 110% overdue so in this case 33 days. “I just noticed your invoice is still outstanding, was there a problem or did you just miss it?”

    Continue this line of nice polite reminders every few days, until its clear you have highlighted a potential risk of no payment or better yet been paid.

  • Send them statements regularly. This is a list of the invoices they have outstanding and how long. Your bookkeeper can prepare this from your accounting system then all you need to do is email it. This will help the disorganised customers people.
  • Create a watch list. List the companies that have regularly paid over the terms.Ring every single person on this list and find out why they normally pay out side the terms. This should be a polite conversation, “for my understanding of your payment process…..”.

    This could be that they only pay invoices on the last Friday of the month and you always send the invoices on the first Monday or they are forgetful / disorganised. Either way it will highlight hopefully if they are having troubles paying or another reason that you can quickly adjust. For example invoicing 1 particular customer on the last Monday instead of the first Monday of the month.

  • Ask for part payment, or move to a “milestone billing” model. A milestone billing model allows you to bill smaller amounts more regularly,for example a website designer may bill 3 times for 1 project, 1) the design phase and prototyping, 2) full website running and live, 3) SOE, Search engine optimisation adjustments and fine-tuning.

    You do need to apply common sense splitting a $100 invoice may be a pain rather than a benefit. To implement this, on your next proposal or contract simply state on the invoice schedule.

And just because I’m on a roll, an extra one,  a 5th way to get your customers to pay invoices faster and more regular.

  • Offer discounts on early payments. I have added reluctantly, however I don’t like this as a method as it eats into your profit margin. It might be good if you absolutely need cash quickly.

That’s it, four easy ways and two actions. Please write in the comments below any other ideas you have or progress you have made.

What is a virtual business mentor?

mentor: a trusted friend, counsellor or teacher, usually a more experienced person.

Every entrepreneur should have a mentor – some else who has actually travelled the road you are about start. This is some-one you respect and that has actually, not talked and written books about, but actually lived the journey. Anyone can talk about it, few survive and live though it.

virtual: in its meaning is not physically present. In this new day and information age we no longer require our business coaches and mentors to be in the next street or the city. We can access the best minds and experience the world has to offer. So, if you’re in Sydney or Melbourne Australia this does not mean you mentor can’t be a Silicon Valley genius.

A virtual business mentor is a mentor who is not physically present, who helps grow and guide you around the obstacles that starting and running a business presents.

How to find a virtual business mentor?

Know yourself: Consciously think about where you are, and where you would like to be. Consider your personality, strengths and weaknesses. Understand what it is you need to grow. If you don’t know yourself, start there, maybe ask a peer to help you constructive find the area you need to grow?

Results: A clear understanding of your purpose and desired result will ensure that you find a suitable mentor, and that you and your mentor find value in the relationship. This clarity also eliminates any future confusion.

Past: Whether deliberately or not, each of us has had mentors in our lives. Think about the people who have mentored you and the qualities that you appreciated most about them. Use these traits as guidelines to finding a mentor.

Referrals: Ask around friends, colleagues, a personal referral is the best method. Be clear about what you’re looking for and why.

Broader Search: use the industry associations, online communities, professors, and a better option can be other successful leaders in your industry. Do not be afraid to ask.

Open mind: A mentor is someone who will help you grow in the area(s) most important to you. Look for someone who exemplifies the traits and skills that you want to adopt. If your accountant models the mindset-management behaviours that you strive for, she could be your mentor.

So what steps are you going to take next or what do you think of my post ?

Are you a business owner or an entrepreneur? While these terms are often used interchangeably, I’m hearing an increasing number of people who are making a clear distinction between the two. This is particularly relevant at the moment – when there is talk of a challenging economy – because the business owners will react very differently to entrepreneurs in such an environment. So what’s the difference?

The distinction … is that an entrepreneur is trying to make money while s/he sleeps, and does it with someone else’s money that scales for a long time, that is about processes and markets.

A small businessperson, on the other hand, is largely a freelancer with support, someone who understands the natural size of their business and wants to enjoy the craft of doing it every day.

Keys:-

Leverage your time – Find a way to go from “hours for dollars” to “hours for heaps of dollars” and finally to “hardly any hours for heaps of dollars”. Of course, I’m being slightly facetious but my sentiment is serious.

Expand your thinking by hanging out with like-minded entrepreneurs – Make a point to be around people who think bigger than you usually do, who can challenge you and support your wacky ideas.

Feed your entrepreneurial soul – Try this for a while. When the stock prices come on TV, tune out. When you hear your friends do the “gloom and doom” talk around the barbecue, walk away. Actively disengage from these conversations and fill your mind with books, audio programs or seminars that will feed you. This will also help you expand your thinking.

Ultimately, it’s not really a series of systems or staff numbers that will transform you from a business owner to an entrepreneur. It’s your mindset. Feeding your business brain and expanding your mind to what’s possible in your business is vital in order to get it to next level.

Comment below and let me know what things are you doing to expand your brain?