Welcome to the first video in our series of optimizing Cash Flow for small business owners. I’m David Worrell from FUSE Financial Partners and today I want to talk to you about the most important thing you can do to prevent cash flow problems: have a good onboarding process for your new customers. Cash flow optimization starts with the policies and practices used at the time you meet a new customer. You want to bring them on before you actually start doing work.
I’ve got 6 tips to share with you in just a minute or two, so let’s get right into it.
- The first thing to check out is do you have a contract? Everybody should have a contract with every customer, even if it’s a simple one. What’s important to us today is that inside that contract you spell out the terms that you expect for payment and collection of invoices, making it clear from the very beginning. Be sure you have a contract with your client that tells them what you expect.
- The second is a document that should follow right behind the contract, and that’s a credit application. The credit application needs to ask your client for references, bank accounts and contacts who can confirm the terms that they give to other vendors. You want to get all you can from your client on the credit application and then you want to dig a little bit deeper.
- Don’t just be happy with the references they’ve given you, ask those references for other references. What do other vendors know of this client? Could we call and talk to them about their payment practices?
- Call and ask the bank to verify the amount that’s in the account that they have given you. How many bounced checks have they had in the last 90 days, what’s their standing at the bank?
- Don’t forget that this process is leading you to set a credit limit. That means that there is a cap at some point. You can’t give everyone more and more credit, so set a limit for each customer and stick to it.
- Be prepared to cut them off from your products or services if they exceed that credit limit. It’s the only thing that you can do to ultimately protect your business. I guarantee it’ll get their attention when you do.
That leads us to invoicing and collections practices, which is something we’re going to talk about in the next short video. I hope you’ll come back and join us for more ways to optimize your cash flow. I’m David Worrell from FUSE Financial Partners, thanks for watching.