Increase your business cashflow with direct debits

One of the most difficult things to deal with when you have a growing business is managing cashflow. It can be very frustrating to watch your business achieve continual profit growth and yet the only reward you receive is an increase in your debtors not an increase in your bank balance.

When I left the corporate world, where you would receive a regular paycheque every pay period, this was the hardest thing to adjust too. It is even more difficult when you have a large payroll and have a commitment to pay regular wages.

The majority of clients appreciate this and as long as you make your payment terms clear in your service agreement, they will pay on or around the due date. However you only need a couple of larger clients to go into 60 or 90 days overdue to place some real pressure on your own situation.

If your business has regular clients with repeat business, a way to alleviate this problem is by getting them to sign a direct debit authority which allow you to debit their bank account or credit card each month for the amount outstanding.

We manage this through a secure third party arrangement so that the client can contact the third party at any time to cancel the arrangement if they choose to terminate their relationship with you for any reason.

The fees are very reasonable - only 99c per transaction, and we have had no problems with new clients agreeing to the arrangement. We make sure we notify the client the day before we process the direct debit so that they can make sure there is cleard funds in the account.

This has been a fantastic way for us to get some regularity in our cashflow and allows us to concentrate on servicing our clients rather than chasing debtors.

May 25, 2008 | Filed Under Bookkeeping Tips 

Comments

2 Responses to “Increase your business cashflow with direct debits”

  1. Ray Stewart on August 5th, 2008 10:09 am

    The equivalent here in the UK is standing orders. Our cash flow has levelled out since we put most clients onto a monthly payment.

    We no longer have to chase them and they no longer receive any nasty bill surprises.

    A win-win situation for us all!

  2. George on August 6th, 2008 11:48 am

    Direct Debits is heaven sent for our company. It makes life so much easier in practical terms and cash flow is more regular.

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