Step 2: Rationalize Your Revenue: Know Your Costs of Sales

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Payment Terms

Payment Terms = you allow for customers to pay within a preset number of days after the time of the actual transaction, typically “Net 30 Days” (within 30 days).

The saying, “communication is king” definitely rules when it comes to getting paid promptly. It’s your responsibility to ensure that you get paid in a timely manner. Buyers somehow become conveniently distracted when it comes time to pay up, so it’s very important that you openly and deliberately stress the importance of payment according to schedule. It’s all about setting customer expectations with appropriate emphasis.

Need more than “emphatic” communication to get customers to pay on time?

Here are some ways to get the dough you’re owed:

Offer a 2% discount if a customer is willing to pay you within 10 days instead of the usual 30 days.
Accept credit card payments so customers can enjoy the benefits of paying later through their credit card statement, while you enjoy immediate payment through the credit card company (or Paypal, as the case may be).
Just ask for immediate payment! Even if you offer extended payment terms, it doesn’t hurt to ask for payment right then and there. Some customers will actually pay right then and there, unless they’ve read our advice here in 8 Steps to Managing Your Money, that is.
Consider factoring, where your customers don’t change their “slow fuse” payment habits, but instead you get a financing company to provide the money today that your customer owes you 30 days out. In exchange, the factorer gets a cut of the total receivable. This is explained more in Step 6.
Make deposits regularly and frequently – a negotiation that only requires agreement between you and … you. Instead of depositing funds into your account at the end of the week or even less frequently, move money into your account same day as it’s received.

Be Realistic

Finally, be realistic when making assumptions about how much money is coming in. As we stressed in Step 1, it’s common for first-time small business owners to overestimate revenue because of over exuberance.

If success if your goal, it’s best to plan your business on conservative assumptions, not on shoot for the moon numbers.

Tip

Price yourself with confidence.

When you’re just starting up a business, it might seem logical to think that you should charge less than other outfits because you have less experience.

Abandon that attitude, says Veronica Rebella, the owner of Thomas & Fees, an accounting firm in Irvine, Calf. “Don’t be insecure about your abilities,” she says. “You’ve got to get over it.”

We agree! We’ve seen countless entrepreneurs who try to compete strictly on price and struggle constantly to eek out a profit margin while battling with other price pressured hucksters. These days, there’s too much competition to build a future on “best prices” alone. Instead, you have to rely on other things like unique offerings, better quality, special customer experience, and other distinguishing factors. That way you move away from the look-alike contest and toward a category of your own at prices that allow you to build a viable business.

If you must play the discounting game, or even more extreme, must offer free products or services to get customers warmed up to you, just make sure your customers know it’s a “limited time” or “introductory offer.” This way, you won’t pollute customer expectations permanently.