I thought we’d left this kind of cash flow issue behind us when the economy started to recover, but a new study from The Kauffman Foundation, the latest Kauffman Firm Survey, found that a growing number of startup businesses are having difficulty getting paid on time—or even getting paid at all.
For a startup company, not getting paid—or even having too many hiccups in cash flow—is a dangerous condition that can put a stop to your fledgling business before it even gets started. But the sad reality is, when your customers start having cash flow problems of their own (or simply want to conserve cash, as many big companies do), a small startup is not going to be very high on their list of “important people to pay.” Unfortunately, the Kauffman Foundation reports “an alarming increase” in the number of startups saying their biggest business challenge is customers who pay late—or don’t pay at all. That figure surged from 2 percent in 2008 to 14 percent in 2010.
While those numbers may sound relatively small, they’re a big deal if your business is the one facing the problem. Late-paying or non-paying customers can cripple a young company’s cash flow. What can you do if this happens to you? Here are three steps to getting paid what you’re owed.
- Speak up. Keep track of payment due dates (this is simpler than ever with accounting programs like QuickBooks) and contact the customer the day after a payment is late. Often, late payments are due to honest errors or oversights, and a quick email or call is all that’s needed to correct the problem and get the cash flowing.
- Simplify and clarify your billing. Make sure your invoices are readable and clearly state amount due, due date, and where to make the payment. Include any PO or other numbers your vendor may require. (You’d be surprised how many companies leave out key points.)
- Go electronic. Emailing bills and/or accepting ACH debit payments from vendors can speed the process of getting money into your business bank account by eliminating time physical invoices and checks spend in transit. ACH is simple to set up with your bank, and many vendors now prefer it.
- Talk it out. If late payment is due to something bigger than a glitch, bite the bullet and discuss it openly with your vendor. Work out a payment plan that your customer can handle. Be polite, but persistent and tough. It may take time, but most companies want to do the right thing—they just need a nudge.
“Young firms’ are facing challenging financial conditions due to difficulty in receiving payments and limited access to credit to grow and thrive,” said Robert E. Litan, vice president of Research and Policy at the Kauffman Foundation, in announcing the study results. Don’t make it harder on your business than it needs to be to get the money you need to survive, thrive and grow.
Rieva Lesonsky is CEO of GrowBiz Media, a media and custom content company focusing on small business and entrepreneurship. Follow Rieva at Twitter.com/Rieva and visit her website, SmallBizDaily.com, to get the scoop on business trends and sign up for Rieva’s free TrendCast reports.
Reprinted with permission from SmallBizDaily.com
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