Since we already talked about the biggest problem for most cleaning service owners (finding good help) let’s talk about another big one. Cash flow. Are your clients paying you on time?
Have you ever had to choose between making payroll or paying your mortgage on time? I think most small business owners have been there.
My grandfather was a pioneer in the car dealership business here in Syracuse, NY. I remember hearing stories of him being at the dealership on Thanksgiving day, trying to close a deal so he could meet payroll the next day.
The truth is most entrepreneurs have been broke more than they care to admit. It’s no different in the cleaning business, let’s look at a few ideas to improve your existing cash flow.
First of all, when do you bill your clients? It may sound like a silly question but let’s think about it. If you bill your clients at the end of the month, after services are complete most will expect to pay net 30.
This means you provide another month of service before getting paid. Ouch. What if you billed at the beginning of the month? What?? Bill in advance? Well, not exactly.
If you send someone an invoice at the start of the month, net 30 then it’s not really due until the end of the month, when services have been completed. Make sense? You may even find that some clients pay you early, that’s a real boost for your cash flow.
Make sure your terms for billing are clearly outlined before you start an account. Have the conversation and ask “what are your normal terms for payment?” Explain that you need to be paid promptly at the end of each month.
Some of our larger contracts have even offered to pay us weekly. If your payroll for one contract is $3,000 or more a week it really can help to invoice weekly.
Now, what about the clients who don’t pay on time? You know, there’s always a few right? First of all, it’s important to keep an eye on your receivables. This is something that many cleaning business owners fall behind on. After all, you are busy running your business, right?
Who has time to look at the books and call late payers? Well someone better or you will end up out of business. The time to address late payers is immediately, as in the first time they are late. Otherwise, they may get behind and never catch up.
When we start a new client, if payment has not been received within 30 days we make a call. Since we are calling about our first invoice, we ask if we sent it to the right place and if it’s scheduled to be paid.
It’s understandable sometimes when a larger company pays a little slower at first. Many times we have to be set up as a new vendor which can be a process. Make sure you always include a signed W9 tax form with your first invoice.
If a client has an invoice over 50 days and they have not responded to collection efforts, then it’s time to consider suspending service. Yes, this is not a comfortable thing to do and should only be used as a last resort.
You should give a written request for payment with a reminder that service may be suspended. Don’t just cut them off, that would be unprofessional. There are services like Fundbox that will ‘clear’ your invoices for you.
Basically, it’s a short-term loan you repay over several weeks. Other companies known as factoring and receivable services will buy your invoices at a discount and have your client pay them. I would suggest that you stay away from any of these services.
They can get expensive and it’s easy to grow dependent on them and never get out.
I hope the cash flow for your cleaning business is healthy and well. If you would like to add a thought please leave a comment.