1. Shorten your payment terms
Easy to say, less easy to apply in practice! If you change your payment terms to 14 days instead of the more normal 30 days, then you are likely to get paid in 30 days rather than 60 days. If you can negotiate it with your customers or clients, what about payment before dispatch of the goods, or payment on receipt of the goods?
2. Have rigorous systems and processes for credit control
Good credit control is not a mystery science. Good credit control requires discipline and someone systematically talking to late paying debtors. In addition, before you engage a new client or major customer, it is worth performing credit checks. I know of one small training company that went into liquidation after an outstanding debt of £50k was not paid. If there is a hint of poor credit worthiness ask for payment up front – or a large percentage of payment up front
3. Have rigorous financial management systems and processes in place
The first way to reduce your costs is to know where you are spending your money. This doesn’t need to be a piece of accounting software (although these will save you time in the long run), some spreadsheets where you are recording all your financial outgoings and incomings, at the point at which they happen will suffice. On a weekly, monthly, quarterly and annual basis, look at your spending patterns and identify and eliminate any unnecessary costs.
4. Formally evaluate the return on your investment
It’s very easy to spend money on marketing, such as an advert in the yellow pages, because the sales person promised you a great return on your investment. If you find that you are not getting a good return on your marketing investment, (or other investments, e.g. training) then change what you are doing.
5. Sell more to your existing customer or client base
It is 7-14 times easier to sell to an existing customer or client, rather than a new customer. What can you do to encourage existing customers to buy from you again, or buy more at the point of sale? Customers are more likely to buy more once they have taken the decision to buy from you.
6. Be clever with your invoicing
By this I mean, ask for BACS payment instead of cheque. If you put your BACS details on your invoice, and ask to be paid via bank transfer, you will probably be paid by bank transfer. Invoice promptly for any work that you complete, and phone the client at the point you e-mail (with a read receipt) the invoice. The client is more likely to pay the invoice promptly rather than sitting on the invoice for weeks.
7. Consider being VAT registered
If your annual turnover is under the VAT threshold, it is still worth registering for VAT if you mainly sell to businesses rather than consumers. This way, you get to recover the VAT on all your purchases for your business.
8. Set budgets
Do set yourself budgets and STICK to them!
9. Limit the no. of budget holders
If you limit the number of people who are allowed to spend money on behalf of your company – and set strict limits for what they can self-authorise, you will have a better control of what your business is spending.
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