Cashflow of practice

Cashflow of practice

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Our firm has remained more than resilient throughout the downturn and has continued to grow, however, a particular issue we are experiencing is aged debtors, late payment of invoices and bad debts affecting cashflows of the business. This problem exists across our client portfolio.

I am currently investigating methods for securing these cashflows and I would be keen to hear the views of peers with respect to this issue. Discounting for early payment by clients (and similar incentives), invoice discounting / factoring  and debt insurance have been profferred as possible solutions.

Many thanks in advance for any advice!

Replies (10)

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By User deleted
05th Sep 2012 16:03

Simple suggestion....

Does anyone within your practice actually chase the outstanding debt and I don't mean statements in the post but by making a telephone call and asking why the debt hasn't been paid.

In my experience this approach whilst time consuming does yield results.  Where I have clients with aged debt which are genuinely struggling with cashflow I agree to accept instalments over x months.  

Alternatively for clients which I feel are taking the p*** I try and get them to use Orchard Funding.

http://www.orchardfunding.co.uk/Default.aspx

 

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Image is of a pin up style woman in a red dress with some of her skirt caught in the filing cabinet. She looks surprised.
By Monsoon
05th Sep 2012 16:20

Monthly payments

We are signing up all new clients on monthly standing order as far as possible.

We are putting accounts on hold and doing no further work until aged accounts are paid.

We emailing regular chasers for overdue invoices.

We invoice 50% on commencement of work (if not on monthly fees) and don't start work until that's paid - reduces bad debt exposure by 50% immediately. No-one batted an eyelid when we introduced this 2 years ago.

All of the above seem to really help cashflow; I guess most who aren't on a regular monthly fee will pay within 30 days.

Personal chasers (email/phone) really work.

If you're at a point where you're considering factoring your invoices then that suggests a real problem and I would check you have looked into all of the above areas first.

We've just switched over to FreshBooks for our invoicing and I love it. It emails monthly invoices automatically, sends automatic late payment chasers, and integrates with Xero (which I also love) for the rest of the accounting. Oh, and it accepts payments by Paypal etc. While I don't like getting paid by Paypal because of the high fees, if it helps get a payment in from a typically slow/ useless payer, then that's fine by me.

Anything that automates the process has to be good :)

 

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By malcolm141
05th Sep 2012 16:21

Some tips

@Holywood - have a think about using fixed fees with payments made during the accounting period. This will give you negative WIP and positive cashflow.

You can get the outstanding debts (and this years fees to date) into a payment plan along with an ongoing regular payment.

Good luck

Malcolm

Accountants North London

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Replying to peter51pjr:
Red Leader
By Red Leader
05th Sep 2012 16:49

pay now

Email to late payer - "I would be grateful to receive payment of my invoice now without further delay".

Next - "Further to my previous email, I am sorry but I am being left with no choice but to take legal action unless payment is made now."

Next - letter from solicitor "intent to proceed with action"  (there are law firms offering this very cheaply online)

If the last one above doesn't work, then the client is D-- and should be chucked.

 

 

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Chris M
By mr. mischief
05th Sep 2012 18:14

my policy

Similar to Monsoon.  70% of sales are standing order.

Anyone can take the Mickey for £250, they can do it once and I can't be bothered with chasing them in the Courts but they'll never get any work from me again.

Above that I insist on 50% up front if not on standing order, and a similar initial adjusting bill for new standing order folk who have urgent accounts or other work.

So far I have written off 0.5% of billings over the last 3 years.  One crticial number - of the 30% who are on invoices, they typically take 90 days to pay.  If my entire practice was like this lot I'd spend all my time chasing them and it would be hell.

 

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Teignmouth
By Paul Scholes
06th Sep 2012 09:27

Similar to some above

We rid ourselves of any of these issues several years ago by agreeing the annual fee (for all anticipated work) at the start of the year (April) sending out the bill then and allowing clients to pay by up to 10 monthly standing orders (now direct debits).

Strangely many clients pay the entire bill in April/May and we then merely have to monitor the monthly sums arriving for the others.  So no need for credit control or strife with clients.

 

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By Jimess
06th Sep 2012 09:43

Standing order and up front payment

We had a terrible time with slow payers a few years ago.  I put all new clients to the practice on monthly standing order where the fees are expected to be over £300 or where we provide regular services such as payroll or bookkeeping.  Any clients with expected fees over £300 that were not on standing order are asked to pay 75% prior to starting work and 25% on sign up.  The rest are asked to pay within 7 days with a sweetener of discount on the invoice if paid on time.

It has kept our debtors book down, but like everyone else we still have a  few clients that push their luck.  They are often the ones that always want something doing urgently, promise to pay on signature, then plead abject poverty when they are faced with the fee note.  I generally try and work out a payment plan with clients who are genuinely struggling, but if they default on that then we engage a debt collector to do the work for us. 

I found that clients actually welcomed up front payment, particularly on standing order as we always give an estimate of what the likely fee is going to be, that way they do not have any shocks when the bill hits the doormat.  The essence really is explaining to the client what is included in the standing order and that any additional work is chargeable separately.

Good luck

 

 

 

 

 

 

 

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By holywood
06th Sep 2012 15:30

Thanks to all!

Excellent to receive so many helpful suugestions, many thanks to all folks.

I had put in place a system for chasing debtors a couple of months ago (i.e. 7 days = email, 10 days = phonecall, 20 days = last chance letter), so hopefully this will have some impact.

The majority of our work is project based, so I'm not sure if standing orders would work -I will have a think as I'd rather not turn to factoring.

I am becoming adept at chasing OMBs / individuals and the like (who seem to always pay the professionals last), but we have a number of large clients where the invoices seem to just go missing for a period - they always pay in the end, but obviously we'd rather have the cash early! I guess we're a little afraid to really push these clients too hard...

Anyway, thanks again - I'm going to pass your suggestions off as my own within the firm!

 

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By User deleted
06th Sep 2012 17:50

Project based clients are no different really to a brand new client who turns up with a pressing deadline - cash up front before we start. If it's an ongoing project over a period of time then one payment at the start and regular stage payments or work halts - the same idea as a monthly standing order. No excuse for bad debts or dodgy cashflow in my opinion :) 

And if you ever do paid work for mates than definitely get the cash up front or they'll take the mick!!

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By Midlands Accountancy
06th Sep 2012 19:10

Maybe we are lucky

We don't take payment in advance or monthly standing orders.  It;s strictly invoice with accounts. Maybe we have our clients trained well, but 90% pay when they receive their accounts, the other 10% pay within a week or so.

I think if you make it clear what your terms are (effectively COD), then clients respond. I can;t recall the last bad debt we had, certainly it was several years ago, and I don't think we've waited longer than a week for payment in the last couple of years, maybe longer.

However, we d make it clear to clients that if they are experiencing cash flow problems they must tell us before we do their accounts, and that we will then happily still do the accounts with a payment schedule in place.

As I said, maybe we are lucky.

 

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