Many businesses are undertaking prudent measures to protect working capital and cash flow to help secure and guarantee continued business growth.
Here are some simple tips that can help you manage cash flow woes in manufacturing:
1. Agree scope of work
Clearly state your costs and payment terms on the contract and ensure your client agrees before starting work – set expectations early on.
Making sure all involved parties are clear and in agreement as to payment, before any work goes ahead, will make it far easier to chase your customer once payment is due. Proof of their agreement to your terms and conditions will make your case much stronger if they cause delays and should help if you have to have those challenging conversations.
2. Accept multiple forms of payment
Be open and willing to accepting multiple forms of payment to maximise your potential for on time payments.
Not accepting certain payment methods could give your customers reason to delay paying. Being open to multiple forms of reimbursement – ideally including credit cards – leaves your customers no excuses! Why not take advantage of the fact that everyone with an internet connection has access to free cloud systems such as PayPal and soon reap the benefits of your open payment methods.
3. Request an upfront payment
Ask for an upfront deposit or set up a payment scheme.
This involves taking a proportion of the cost before work commences and is an effective, yet reasonable way to set boundaries for your customers. Equally, a reduction in the due balance once the work is complete could also have a positive impact on their ability to pay.
4. Set the terms and enforce them
Encourage clients to stick to your payment terms.
If your clients do not pay within your agreed, specified time limit then it is important that you follow through with your conditions. Make sure your invoices clearly state what will happen when payment is delayed: whether that means charging interest, reporting them to the relevant parties or in extreme cases, taking legal action.
5. Ask your clients to sign the Prompt Payment Code (PPC)
Agree to ethical and fair treatment between organisations and suppliers.
The Prompt Payment Code was set up by the Department for Business Innovation and Skills and encourages best practices between organisations and their suppliers. Signatories to the Code commit to paying their suppliers within clearly defined terms and commit to ensuring there is a proper process for dealing with any issues that may arise. This code gives suppliers the opportunity to build stronger relationships with their customers, safe in the knowledge that they will be paid, and confident that they are working with a business that values the service they deliver.
6. Use an invoice finance facility
Get paid, even when your clients haven’t.
Invoice finance is simple. As soon as you raise an invoice, you are provided immediate access to your money, easing cash flow pains and helping you to bolster your business performance.
There are two different types of invoice finance:
- Invoice discounting: This is a discreet, confidential solution to enable you to release capital and settle invoices more quickly. You use an online invoice discounting facility such as IDeal to raise your invoices, with your finance partner delivering you up to 90% of the amount due almost immediately. You still chase payments from your customers as you would, and they do not know you are using any sort of financing facility.
- Invoice factoring: Factoring offers the same benefits of discounting in that your funds are immediately available, however with factoring you work in partnership with a third party Credit Control Team that will collect customer payments on your behalf.
If you’re interested in exploring how invoice finance solutions could help you increase the working capital in your business, you can contact our team to understand your specific business needs.