Late payments can be the difference between success and failure for a small business owner. Every small business owner certainly needs to make a profit to survive.
To be able to make a profit, which after all is the main aim of all small business owners, getting paid on time is an essential element. Late payments drain profits and at their worst are dangerous for the business.
‘As the director of a business, if you aren’t making a profit, you aren’t doing your job.’ Michael Sheargold (my first business coach).
Small business is tough enough without late payments
I know small business is hard – I had one for 15 years.
Having a small business that’s successful, makes a profit, and becomes valuable enough for someone to want to buy is surely the aim of every small business owner.
Often, because customers pay late and so cash flow is slow, the business owner is stressed and anxious and unable to grow their profits and develop their business. Unfortunately, in those circumstances, a small business just becomes just ‘a job’ for the owner.
Happily, having lots of spare cash in the bank and better cash flow can be just a matter of learning how to ‘tweak’ a few areas of the business – and getting paid on time is definitely one of those areas.
You’ve invoiced – but have you been paid?
You’ve done your research and marketing to get the lead, worked hard to get the order, and you’ve done the job. You have issued the invoice … but have you been paid?
If you don’t get paid for your work, or you get paid late, your profits will eventually shrink. If customers don’t pay at all, you could have opened the window and thrown out the equivalent amount of cash. That would have been easier and would have cost you less.
Most people don’t start a business to lose money. In fact, they start because they want to make money. But we know that the failure rate of small business is very high and it’s often due to cash drying up because of late payments. That scenario can leave the owner worse off than before.
Why small businesses fail
The National Federation of Independent Business tells us that small businesses fail due to insufficient capital and poor cash flow management.
You may already know that:
- 35% of businesses fail after two years
- 50% of businesses fail after five years
- 67% of businesses fail after ten years
In terms of the people that are involved in those failures, that’s a lot of unhappy people who have worked hard but lost their investment – and very often all because of late payments.
Invoices paid on time = healthy profits
Getting invoices paid on time is a huge step towards making a healthy profit. With invoices paid on time, you should be able to have a strong cash flow to pay your bills, pay staff and suppliers and pay yourself.
‘It is not the employer who pays the wages. Employers only handle the money. It is the customer who pays the wages. ’ Henry Ford, founder: The Ford Motor Company
The key to success? Focus on Profit.
I started my own business in my 40s after a divorce.
Age 40, I suddenly had no home, no job, and very little money. I realised that I didn’t have too many years to rebuild my life and provide for my future. That’s when I decided to start a business. I wanted to provide myself with a big enough income so I could buy a home and feel secure again.
A couple of years after I started the business, I heard a successful business owner share how and why he had such a strong focus on profit. This is what he said:
‘The only reason to have a business is to sell it.’
(he grew his profit and business to the extent that, several years later, it became a public company.)
I realised then that companies buy profitable businesses. I realised that if I made good profits, eventually, I’d be able to sell my business to fund my retirement. That, and also hearing that I wasn’t doing my job if I wasn’t making a profit, was how I learned to focus on profit.
Over time I learned that by giving customers exactly what they wanted (not more, or less, just exactly) and by providing excellent service all through the sales process, we built strong relationships with all our customers as a result.
Customers came to like us and value our service. As our relationships grew, we found our customers were much more likely to pay us before they paid other suppliers.
No late payments meant both strong cash flow and a full bank account. Not having to stress about cash flow left me free to focus on profit and grow the business.
Fewer late payments and more orders
You can think about good customer service as providing a way to enable your customer to pay on time.
For my business, there were two added bonuses:
1. Our customers gave us more orders (instead of going to our competition), so we only had to spend minimal amounts on advertising and marketing to find new customers.
2. They referred us to other businesses – free marketing!
Take five minutes now to make a list of the ten easiest ways you can provide a better service to your customers.
Implement your new improved customer service strategies and watch how you get paid on time and customers place more orders with you – just like ours did.
What else can you do now to avoid late payments in your business?
To your business success!