Tips to help you improve your Business Cash Flow
As a Buiness consultant working with a wide range of businesses I have considerable experience on the impact of clients experiencing late payment and having to chase payments from customers and even worse finding that you may never get payment.
Any business will be impacted by late payment or non payment and small businesses even more so, it will have a considerable impact on cash flow and the ability to make payment to your suppliers and staff. Cash flow problems are one of the main reasons for the failure of a business. Many businesses are profitable however late or non payment can mean that they are no longer able to trade. By following the Tips and implementing a simple process you can reduce the problems of late payment and secure your business.
- Get to know your customers. Undertaking a credit check on all of your customers is a must! It is not difficult and there are a number of Companies who provide the service at a relatively low cost, a simple search on an internet search engine for “How do I credit check a Company” will provide results and you can obtain a full credit check for £2. You should credit check all new customer and then undertake regular checks thereafter, I would suggest every 6 months or more regularly if you suspect that a customer is having problems in making payments. I have an example of a Company, who when credit checked were rated “red” the lowest level and a recommended credit limit of just £250, however suppliers continued to provide supplies in some cases for in excess of £10000. They clearly did not have credit control systems or processes in place! The result? The company involved went into liquidation and the suppliers likely to lose substantial funds. If you only take 1 action make sure you credit check all of your customers and diarise to check regularly.
- Make your payment terms clear - By ensuring your customers know your payment terms you will reduce the potential of late payment and improve your cash flow. Ensure that your payment terms are included on every invoice you send and keep them consistent. Also explain your payment terms to your customers verbally and be clear about time frames and acceptable methods of payment.
- Take a Deposit - Consider revising your payment terms, have you considered taking a deposit before the work starts? Many businesses now ask for a deposit of up to 50% on receipt of the order with the final payment on satisfactory delivery or completion. This will improve your cash flow substantially and you should not be embarrassed to ask. If you already take a deposit then consider increasing the amount you take.
- Start chasing payment as soon as it is due - Effective credit control is vital, do not delay in chasing payment, as soon as it becomes overdue contact your customer, it is best no to allow any leeway as the longer you leave it, the longer payment will take and your customer may prioritise other payments other than yours, this only impacts on you and your cash flow, so know when payments are due and make your call the following day.
- Take immediate action - If you have not received payment within the agreed timescale then STOP supplying your customer immediately. There is likely to be a reason why you have not received payment and that could be because they do not have the funds. Continuing to supply is not good business sense. Yes it is difficult yes you may feel guilty and you may feel you will lose business, however remember if you are not getting paid it is having a massive impact on your cash flow!
- Consider outsourcing your credit control - For Small and Medium sized businesses credit control can be difficult to implement, also if you know the customer and you are chasing the debt then it may make you feel uncomfortable and therefore your credit control is not prioritised. Who could chase your payments? Do you have a bookkeeper that you can task with chasing payment? Alternatively there are a large number of companies that provide a service again an internet search will let you know the ones local to you.
- Use a debt collection agency - If you are experiencing late payment and you have chased payment and still not received the funds then take action quickly, using a debt recovery agency is fast, efficient and relatively inexpensive, they will work on your behalf to recover the payment and your customer will be in no doubt that you are sticking to your terms. A solicitors letter will normally achieve the result that you require very quickly.
This is not an exhaustive list of tips, however looks at the key ones relevant to small and medium sized business. As a SME in the current economic climate you cannot afford to experience late payment as the impact on your cash flow can be potentially massive and place your own business at severe risk.
At Winfields, we can provide a range of services to help you with your credit control including reviewing your current processes, aiding you implementing processes that work as well as undertaking your credit control and chasing payments when they become due. For more information contact us by calling 0116 3260017 or email info@sbmids.co.uk