How Direct Debit can help SMEs fight poor cash flow

For small businesses, cash is king. Managing your cash flow is one of the most important aspects of maintaining a healthy business outlook.

Guest post by James Walker and Kin-Hing Lo
GoCardless

Failing to manage your cash flow effectively could lead to additional borrowing. Worse still, companies with poor cash flow may find it harder to get access to finance. In extreme cases, poor cash flow could even mean you need to pay your own suppliers late. This could incur extra fees and damage business relationships.

Late payers are bad for cash flow

Chasing late paying customers is time consuming and painful: 32% of small businesses admit they’re reluctant to do it. More than a quarter spend 12 hours or more each month chasing late payers. Furthermore, two-thirds of small businesses have had to write off invoices completely due to non-payment.

Direct Debit gets you paid on time

Whilst bank transfer seems to be a cheap way of taking payments from your customers, it means having to rely on them to push payments to you upon each invoice. Direct Debit puts you in control. It allows you to pull funds directly from your customers’ bank accounts whenever money is owed on an invoice. You get paid on time, and it’s much easier for your customers. You can take payments cheaply and easily via Direct Debit from within KashFlow using GoCardless.

Has Bean Coffee is a major supplier of high quality coffee to the retail and wholesale sectors. They began using KashFlow with GoCardless to manage their invoices and payments online. This reduced their average payment period from 62 days down to 41 days. It also improved their cash flow by 30%.

Owner Steve Leighton explains:

“Direct Debit gives us control over when we get paid and takes away the uncomfortable conversations about money.”

Direct Debit enables a new way of doing business

A major benefit of using Direct Debit is getting paid automatically on time, every time. By automating the process of getting paid by your customers, you’ll free up time to spend on other parts of the business.

Hassle-free payments also means you’re able to explore new models of doing business. With the process of taking payments now much less of a hassle, why not try setting up a subscription-based business where you charge customers every month? For instance, rather than selling individual products on your website, why not send your customers a new and exciting product to try every month?

Subscription-based businesses have already shaken up a lot of industries: Netflix subscriptions have replaced DVD rental and Spotify subscriptions have replaced buying a CD. Offline, various companies now provide a subscription-based service for everything from gourmet coffee to fresh vegetables and hand-made artwork. Delight your customers with new products every month without the extra administrative burden of chasing those individual monthly payments.

Other benefits of running a subscription-based business include better stock control and improved cash flow (you’ll know in advance how many products to order and when you’ll be paid by customers for those products).

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GoCardless is a next generation payments company. We make it incredibly cheap and easy for anyone to take payments online using Direct Debit. We also integrate seamlessly with KashFlow. Find out more here.