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How to Manage Client Relationships for Positive Cash Flow

No matter what industry your business is in, as an owner or business operator, one of the key areas you’re always managing is your customer relationships. Building and maintaining robust customer relations sets strong business foundations, which in turn helps build business growth by generating reliable sales, repeat customers and a positive cash flow.

In 2017, over 40% of small businesses were paying their invoices late, often taking up to around 36 days to pay an invoice. This directly impacts business cash flow and generally has a flow-on-effect when these companies need to settle their own liabilities.

Although recent economic conditions are improving payment times via the low interest rate climate is currently aiding corporate cash flows, there is still a long way to go to help get businesses to settle their invoices within their agreed credit terms.

Looking at Illion’s March quarter analysis of 2019 – ‘Australian Late Payments’, small businesses continue leading the way in terms of paying on time, however large organisations are still the slowest to pay their liabilities – taking 14 days compared to 10.3 days for small business.

Despite some positive indicators being released from illion’s latest March Quarter 2019 report, businesses need to consider and be aware of the broader economic climate and how it impacts their operation. Whether you’re exposed to volatile conditions or not, one aspect of your business you should always focus on no matter the circumstances are your client relationships, as not having solid relationships could define the longevity of your business during difficult times.

Customer relationship management

Communication and frequency
Strong customer relationships are built on effective and frequent communication. By taking the time out of your day to illustrate that you really care about their business and what your business is delivering to them is paramount. Frequent interaction also allows you to have a finger on the pulse – whether this is being aware of new business opportunities or knowledge to manage or mitigate potential issues before they arise.

Having a solid business relationship with your customers essentially means that you’re very much aware of what is happening in the servicing of these customers, but more importantly, what is actually going on in their business. This type of relationship builds trust, and with trust you generally acquire loyalty between you and your customer. This can be crucial when you experience late payments, as customers are generally more encouraged to make payment on time if they are have a strong relationship with a vendor or key contact they deal with on a day to day basis.

Deliver Results
Successful and long-term customer relations are often formed through delivering quality services alongside great customer support. No matter what industry you operate in, if you’re delivering results – through providing a quality product, service or any other favourable outcome from a transaction, you will no doubt generate strong customer or client loyalty to maintain successful business relationships.

Build authority through transparency and knowledge
One of the most critical foundations of forging strong relationships with clients is being completely transparent and passing on valuable knowledge so you’re perceived as a source of good authority. Working in an open manner with your clients and showing empathy towards their business and their ideas, illustrates that you have their best interest in mind and that you’re an invaluable part of their operations. Furthermore, being perceived as thought leaders or perhaps just having an appreciation and knowledge of their industry will also amplify your business relationship, as it highlights that you’re invested in them and your business partnership.

Now that we have outlined some key areas of customer relationship management that is important to preserve long-term business partnerships, we now look at some of the most effective strategies to put into place to encourage clients to pay on time and maintain your hard-earned cash flow.

1. Credit check customers – both new and existing
If you provide products or services and receive payment after services rendered eg. 30-day payment terms, your business is effectively extending a line of credit to your client’s. It is for this reason that when you are considering taking on new customers, conducting your own due diligence to be aware of who you are engaging with and their financial capacity to pay their obligations. Similar to all financial institutions, before they agree to extend a line of credit to you, they review your financial position to understand your ability to meet the respective financial liabilities as and when they fall due. So why would you conduct your business in a different way?

Crediting checking new customers is a great way to provide a position of guarantee that your clients are able to pay your invoices within the specified payment terms set down. Credit checks provide important information about a business or individuals financial record – whether good or bad, thanks to the recent introduction of the Comprehensive Credit Reporting in Australia.

Credit checking shouldn’t be solely focused on new customers, as periodic reviews of existing customers is also a very important strategy. By making sure you’re aware of your existing customers financial positions, helps to mitigate any potential issues arising from changes in economic conditions that expose certain customers – ultimately impacting their ability to pay your invoices on time and safeguarding your businesses short-term cash flow.

2. Enforce and have clear credit terms
When on-boarding new customers, its important that they are completely aware of your credit or payment terms and what methods of payment you accept. By making sure all contracts and trade agreements include all the relevant information clearly to remove any ambiguity, will ultimately minimise any potential issues (or excuses) in the future.

During the early stages of negotiation, emphasising that your business is proactive and serious about enforcing payment terms will help set expectations from the start. Although it’s inevitable that you will experience slow payers at some point, by making sure you are consistent in outlining your payment terms is crucial to getting paid quickly.

Make sure your invoices include all the relevant information needed to help customers make payments on time. Outlining the expected payment date as per your trading terms and calling out information like “payment is due with 10 days of receipt”, will minimise any abuse with a claim the invoice hadn’t been receipted.

3. Leverage technology
A majority of businesses nowadays have specific systems and processes in place to help automate key business functions, however there are quite a lot of businesses who still don’t have basic systems in place to help them grow.

With the advancement in technology, there are now more solutions to choose from to help streamline specific operations of your business – allowing you to focus on other important tasks to build your business. Whether you’re a small business or large organisation, leveraging technology like intuitive accounting and invoicing software like Xero or MYOB, helps automate the whole invoicing function, whilst also providing additional capabilities like email alerts to remind customers that their payments are overdue. Adopting such technology and implementing core automation processes can save you large amounts of time, as I’m sure you’d rather be working on other parts of your business than chasing slow payers.

SEE: How to Start Up a Dollar Store Business - Easy Guide

4. Get professional help
If you’re constantly chasing customers for payment or are having difficulty getting paid for an extended period of time, you may need to be more proactive to settle the issue. Whether they’re facing financial difficulty or just constantly slow at paying their invoices, it may require you to approach them to help settle the debt immediately. Depending on the type of relationship you have with the customer, could ultimately depend on how they perceive your approach to settling their invoice. One of the most common concerns businesses face is managing the situation and the potential of the relationship to turning sour. If this is the case, it could be time to consider outsourcing your debt collection or accounts receivables function to a professional debt collection agency.

Reputable collection agencies are professional and simply great at what they do – collecting debts. They have access to technology and information that most businesses don’t have exposure too, resulting in their ability to getting your invoices settled quickly with little fuss to you. Despite the stereotypes, professional debt collectors follow strict guidelines that have been set down by legislation, so outsourcing such functions can be a very cost and time effective way to maintaining a strong cash flow – whilst at the same time preserving your business relationships, which is the foundations of any business.


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