Payment options can make or break a business.
As business owners, we are often caught up in the day-to-day of running a business.
Being caught up in the day-to-day means focusing on pressing issues such as staff, sales, debtors… the list goes on. Something like payments options can be so under your nose you don’t consider it.
But making sure your payment options are right can be the difference between a stressful and a stress-free business.
This is because getting your payment options right can have a massive impact on your cash flow.
Having the correct payment options and terms helps you get paid quicker.
There are a few things to consider when updating your payment options.
Should you update the timing of your payment options?
Your payment terms are a contract between you and your client, but they don’t have to be the same for every client.
One key variable is the timing of the payment.
Generally speaking, there are four commonly used timings of payment people use.
The first, 100% payment upfront. This payment option secures your cash flow, but it mean you must plan your cash flow clearly and stick to your budget with discipline, as you will receive lump sums in one go.
The second, 50% upfront and 50% upon completion. This payment option is becoming more commonly used, is generally agreeable to clients, and offers an extent of cash flow flexibility for your business.
The third, 100% payment upon completion of work. This payment option is workable, but it may lead to a periods of tight cash flow and high debtors. If you are choosing this option for a client or many clients you must realistically accept that ‘upon completion of work’ does not always mean upon completion of work. That is especially the case in rough economic times, which WA was facing for some time up until recently.
The fourth, monthly instalments. This payment option is growing in popularity and can be a fantastic choice for both parties involved as it is smooths out cash flow on both sides. Monthly payment options allow reoccurring revenue for your business, as well as reduce friction for customers during the transaction process. Reducing friction during the payment process has been shown to increase customer satisfaction.
Is a third party financing option appropriate?
Lastly, should you consider a third party financing option?
These are popping up more and more on the market, and really are to be considered on a case by case basis.
If you go down the third party financing option, we recommend seeking professional advice to determine whether this route is right for your business.