How to get paid on time.
One of the most frustrating parts of owning a business is that you can't guarantee getting paid by your clients on time. When it comes to chasing people for money owed to your business, prevention is far better than cure. Setting up clear rules and systems in the beginning is the best way to prevent any problems down the track.
Create efficient systems
This is the first and most important rule. Without an organised system for invoicing customers and for following up on unpaid ones, a business is heading for debt collection problems. For larger jobs, it could be a good idea to do a credit check beforehand to make sure you're going to get paid at the end of the job. You can take the simple approach and ask your client for names of those they've done business with previously to see that they got paid on time or the best practice is to contact a professional credit agency – check out Centrix.
It's time to quote
Always kick off with a quote or estimate because when your clients accepts, and they will usually have fewer questions when it receiving the invoice. If the quote needs to change, make sure you get agreement from the client as you go so there are no surprises.
Be quick at invoicing
Clients will not pay until they have been invoiced, because the invoice provides a record of the transaction. The sooner you invoice customers, the sooner you can get paid. Use email if you can and make sure the invoice looks professional.
Follow up swiftly
The longer you leave an unpaid invoice, the less likely your chances of getting paid. Once you have created an efficient invoicing system, don't ruin it by not following up overdue invoices straight away.
Offer reward for early payment
Offer a discount on invoices if they are paid within 5 or 10 days of being issued. While this means you will be taking a cut, sometimes it's worth it just to have money coming in on time. Experiment with offering the discount and see if it improves cash flow.
Give them a reason not to pay late
Charge a late fee for invoices that are paid past their due date. Once your clients realise how serious you are about due dates for your invoices, you may quickly see fewer late payments.
Make it easy to pay
Offer your customers professional payment options, such as PayPal, or set up a payments system on your website so they can easily pay online.
As the owner of your business, you may be in close contact with your clients, and you're probably the one sending the invoices and reminders. Even if you consider yourself friendly with your clients, be strict about payments. After all, this is business, and your business has to make money to survive.
While it is nice to give an employee a small stake in the company, showing loyalty to a staff member who seems to go that extra mile for the company, it can cause problems downstream. The directors may have regarded the business as theirs where in fact it is the company's, a subtle difference.
The directors might claim expenses that, while a legitimate expense, provided a personal benefit to themselves; a conference in Las Vegas, a trade fair in Germany with incidental side tours attached.
With a minority shareholder on board, those expenses are fodder for a claim of prejudice against the minority.
When the company buys a new luxury car for the director, the minority shareholder who has worked hard to improve the performance of the company can get a little upset. Especially if there is no dividend rewarding them for their effort. There is a whole new dynamic to running the company with minority shareholders. A dynamic that should always have been there, but with a minority shareholder is a lot more important.
When the relationship sours or for some other reason the minority shareholder leaves the employ of the company, hopefully there is an agreement that they must sell their shares. Otherwise the company will have to recognise that they continue to have an interest in the company and must be provided with annual financial statements. They may require the company to be audited, and can continue to argue the directors are not treating them fairly. Worst of all they may commence plying their trade with a competitor. If they left feeling hard done by, they may use whatever information they can to carry favour with his new employer, including the financial information they obtain as a shareholder.
Hopefully, there is a shareholders agreement which can require the shareholder to sell on the termination of his employment. We can envisage an employee of longstanding retiring but wishing to retain his shares and the employer happy with that.
If the shares are to be purchased, it is probable the agreement will stipulate it must be at Fair Value. This would be a requirement under S.149 of the Companies Act 1993 if the directors are the purchasers.
While it is a nice idea to have an employee owning some shares in the company, we caution against it. The reward given now may become a rod for the directors back in the future.
Just as we recommend serious thought on an employer giving shares to an employee, we recommend that an employee consider rejecting owning shares to reduce any issues extraneous to his employment relationship.
Article sourced from Gerry Rea Partners