Paying Yourself First?
The credit crunch claims another corporate victim…, the government announces its first deficit in 10 years…., housing prices may go down by as much as 25%….” are headlines all over the news. The stream of bad economic news seems endless at the moment.
Regardless of whether customers are being hit financially in reality, or whether they are being hit in their minds, the net result is the same, and that is they will tighten their purse strings and prioritise payments in three key areas:
1. WHAT they buy;
- WHO they buy from; and
WHEN they pay.
Businesses that end up on the wrong side of these choices will see their sales revenue decrease, their customer bases diminish, and greater portions of their invoicing become delayed or turn into debt. Any one of these factors, or worse a combination of all three, can see the profitability of a business tumble.
What Customers Buy and Who they Buy From
If you have a quality, useful product that people value and that they see as good value for money, then you will maintain your position in the “what” and “who” lists. However, if your business does not fulfil in these areas then there is a risk that you will lose customers to competitors who are offering better value propositions. There is a wealth of information available about how to maximise the value of your product or service in the eyes of your customer, and if you are in any doubt as to your standing, a great first start is to ask your customers – survey time!
Achieving priority on the ‘When’ list is Important
Assuming that your business is providing a product or service that is valued enough to maintain your customer’s loyalty, then the next achievement is to maintain priority on the “when” you get paid list. Achieving a high ranking on the “when” list is extremely healthy for a number of reasons;
1. If your business is getting paid on time every time, then cash flow is strong.
2. If your customer is prioritising your payment, then it is far less likely to become a late payment, or even go to debt.
3. If your current customers are paying you on time every time, then it only natural that new customers should do the same and bad payers will stand out easily and you will be able to weed them out.
4. If you are getting paid on time every time, your suppliers will be more relaxed and happy to not get paid on time every time, then you create financial breathing room.
How to Achieve Payment Priority or Paying Yourself First
So, how do businesses achieve paying yourself first? The obvious method is payment in advance. Ever tried walking into a McDonalds and eating a burger before you’ve paid for it – never going to happen! Retail always gets paid on time because it is a simple, often once off exchange – money for goods. Many businesses deal in more complex, ongoing relationships which involve monthly supplies of goods or an ongoing service to their customers. These arrangements are much more prone to delayed or failed payments as they often rely on invoicing, and payments in arrears or “customer not present” payments in advance such as internet banking.
In all these scenarios the customer is suddenly faced with a choice, do I pay your bill or do I buy that new piece of equipment for the office? Do I pay your bill or do I go for that facial I’ve been hankering for? Or simply, do I pay your bill, or do I pay their bill? Some businesses provide a service that can be turned off, for example internet service providers and this provides an element of security. However, in many ways turning off a customers supply of any service or product should be a worst case scenario. It causes administration cost at your end and drives a wedge between you and your customer.
Direct Debit Equals Paying Yourself First Priority
A far better way of creating payment priority is through direct debits. The big boys have been using it for years, to the degree that some of the energy and telecommunication companies provide a discount if customers pay them by direct debit. They do this because they understand that it drives their payments way up the priority chain. Unlike automatic payments (AP) which are still reliant on the customer to set up and vary each month, direct debit places the control in your hands. Customers no longer have to physically do anything to pay your bill and the load and forget nature of direct debits means that your bill becomes a high priority with out a decision from the customer.
Another benefit of direct debits is the customers are driven to communicate with you if they genuinely can’t afford to pay a bill, and from here your own business rules will determine the outcome. This is greatly preferable to the head in the sand approach that gets applied to invoices or the switching off of automatic payments until you are forced to contact the customer. Communication with your customer inevitably leads to a reduction in debt which is a great thing for any business.
Direct Debiting with Ezypay ensures Paying Yourself First Priority
Acquiring the ability to direct debit from banks can be a tough call. They often require either a very long history with them or a very high turnover. Ezypay has over 10 years experience in providing direct debit capability to small and medium sized businesses and have developed online systems that make the administration of direct debit simple. So if you have a company that is providing a good value service or product to your customers, whether they are businesses or consumers, then paying you should be a priority. If feel that it is only right that you get paid on time, and would like to move your invoice to the top of the list, rather than risking it at the bottom of the pile, then we would be delighted to show you how.
Call us now on 0800 399 011 (New Zealand) or 1300 762 726 (Australia) or contact our sales team to find out how we can help you make paying yourself first a priority in your start up business.
You can read the full and original article: Top of the list or bottom of the pile – is paying YOU a priority?