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There’s a hole in my pocket

Even if you haven’t got any money, yet, you still need to have a comprehensive plan in place as to how you’re going to take in payments, organise credit terms, and manage your accounts.

The whole area of getting in money and then managing it can be a minefield for many business people. Most of our strengths are related to what our product or service is – not how we actually ‘manage’ the money side of things. Therefore problems often arise in areas such as getting paid (on time and in full). Even though you may have an accountant, it pays to understand the system, even on a simple level. When you understand that, you can then look at ways to make life easier also for your clients in terms of how they pay you.

The Bank
The first, and most obvious step is opening a bank account. Prior to this you will have registered your business. Fortunatly business banking is now designed heavily around making the process as easy as possible for you. Have a look around and see who seems to fit where you are now, and where you want to be. See which bank is the most ‘business-friendly’ – then set up a meeting with them. Bring along both personal and business details (identification, licenses, etc.). Listen carefully and ask questions that are specific to your business – Will you need credit facilities? Do you need credit cards? Are you going to taking payments in by credit card from your customers?

The Books
There are three options open to you when it comes to bookkeeping – do it all yourself, have an accountant do it for you, or a mix of both. There’s some excellent software available to make your life easier, and the more bookkeeping you do yourself, the more in touch you’ll be with the business. This software makes life easy for the novice, as it simply allows you to generate invoices and then track them, monitor banking details, and closely monitors debtors and creditors. If things get too busy in this area, you always have the option of hiring a bookkeeper to sit between you and your accountant.

Customer’s Money
Make it easy to make them pay. With so many options available today – cash, electronic transfer, credit card, cheque, etc. – it is important that your system are set up to ensure that it’s as simple as possible for your customers to pay you. Talk to your bank about ways of reducing charges and fees on the ways you collect money, but in many cases you may just have to write them off as costs of doing business. If necessary negotiate hard with your bank on percentage fees – if you’re a good customer, with potential, then they’re going to want to keep you. Finally if you’re inflexible about the ways your customers can pay you, then you’ve got to expect a certain percentage not to engage with you.

Is Cash King?
It’s fluid and it’s instant. It’s the quickest way of re-diverting funds within your business and, at a certain level, it’s the only way to transact with your customers. However dealing in cash brings its own problems – namely that you often have no paper transaction against it. This can lead to problems should theft or loss become an issue – something which your insurance company is going to have a problem with, should a claim arise. In many instances you don’t have a choice, you simply have to deal in cash. In such instances its important to discipline yourself in safe methods of accounting for, and banking, cash.

Cheque-List
Traditionally the cheque has been the most reliable way of transacting money, but we’ve probably all had relationships with the rubbery versions. If you’re dealing with new customers try and protect yourself as best you can. You may be able to insist on a draft (if it’s for a large amount from a new customer), or for smaller amounts use cheque guarantee cards, or take identification details on the back of the cheque (passport, driving licence, etc.). Finally always check the details, you’d be surprised at how often the written amounts or dates are incorrect.

Credit Cards
If you can remove cash entirely from your system then your bookkeeping becomes even easier – in many cases you’ll have to provide a card payment option in any case, and it’s really the only practical way of doing business through the internet. The first step in setting yourself up to take credit-card payments is to have a merchant account with your bank. This might seem like an additional hassle, but it’s worth noting that studies have shown sales increases of 50% with merchants that introduce credit-card payment options. There are a lot of various charges involved, even outside of transaction fees, but in today’s marketplace the ability to take payments in this manner is essential. While you’re talking to your bank about having a credit card merchant account, it’s worth also discussing extending this facility to also cover debit cards, such as laser. Online banking can also be done through online payment services such as PayPal. This might be an area you consider to be the reserve of Ebay, but don’t discount it – 40 million people in 45 countries can’t be wrong!

Deposits
All too often we rush into work, so delighted with the fact that we’ve got the work we neglect to ask for a deposit. Sometimes it’s not just neglect – it can be down to an unwillingness on our parts. In the real world there’s nothing wrong with asking for a deposit in advance of work commencing. You’re going to do the job, the customer is going to pay – the only difference is the timing of the payments. If a customer is reluctant to pay a deposit, then perhaps it’s not a job you’d be wise committing to anyway. For service work, you should be looking at 25%-50% of the overall job value, and in other areas you should at least be looking to cover your out-of-pocket costs, should the job be cancelled for any reason. Similarly, you could work in a ‘progress payment’ system, whereby certain stages of the work being done trigger payment schedules. When you’re working on jobs larger than you normally deal with, it’s essential that you have some form of system in place to reduce your financial exposure.

Credit where it’s due
Depending on whether you’re business is engaged in business-to-consumer, or business-to-business activity, you may find you have to extend a line of credit to your customers. Naturally we all wish to be paid at the earliest opportunity, but sometimes you’ve got to agree to wait for 30, 60 days ….sometimes even longer. It will all come down to how strong the business is, and the circumstance of the relationship. It may help to incentivise early payments – such as offering a percentage discount.

Time to get tough
Regardless of how you structure your payment collections, there’s going to come a time when clients/customers just will not pay. This is especially true as the economic climate worsens. The most important thing here is to keep talking with those that owe you money. Keep the pressure on, in a nice way, in the early stages. It may be that a customer has a genuine, but temporary, issue. Keeping it civil will greatly help should the customer’s situation improve. The next step up is to either use a collection agency (who would normally take a percentage of the of the money owed as their own payment), or call in the solicitors. In both cases, things will have turned sour meaning that it’s going to prove very difficult to find a successful resolution.

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