How to improve cash flow and avoid debt recovery

How to improve cash flow and avoid debt recovery

No company can survive, let alone thrive, without healthy cash flow. 

Here are six top tips for easing your debtor burden and improving your cash flow.

1. Get it in writing

Always set out clearly in writing what you are (and are not) intending to deliver as part of the project. This does not need to be in a formal contract – an email will suffice – but you need something confirming the deliverables that you can point the customer to if they start to say they expected more.

2. Manage expectations

If the customer wants to reduce costs, do not compromise on quality. Instead, look to renegotiate a reduced scope for the work. If something is out of scope, do not be afraid to tell the customer that it will cost them extra. Resist making substantive changes at no charge as this could result in the customer expecting similar concessions at every stage of the project, including payment.

3. Make sure you are both on the same page

At each stage of the project ask yourself “do we know what the customer wants?” and “does the customer know precisely what we are delivering?” If the answer is “no” to either question, stop and discuss expectations with the customer before investing any more resources into the project.

4. Talk about delays

Do not presume that the existence of (and reasons for) a delay are obvious to the customer. Communicate delays and be up front about the ways in which the customer has contributed to them. Where there has been a delay, your customer is far more likely to pay up on completion if they have been able to help prioritise the most time-critical areas of work to keep the project on track.

5. Keep an eye on the costs

Whether you have agreed a fixed fee, or to charge on a time and materials basis, it is important to stay on top of the costs. Even the best managed projects can come in over budget. Your customer is more likely to pay for any overspend if you tell them about it before costs get out of control.

6. Pay as you go

Work on technology projects tends to be front-loaded, yet payment is often deferred until after final sign-off by the customer. This can give the customer the opportunity to negotiate a last-minute reduction, or refuse to make payment at all, often based on no more than debugging issues. Consider including staged payments at agreed intervals (or triggered by interim milestones) to minimise the risk of large sums of money being held up by a customer refusing to sign off at the end.

Published on
August 25, 2021