choice
your
How to improve Cash Flow For small businesses to survive the current economic downturn it is essential that they have a firm grip on their finances. Samantha Shottle highlights what small firms can do to ensure they aren’t caught out. Due to the current economic climate, it is more vital than ever that small businesses are on top of their finances and ensure that their cash flow does not dry out. There have been recent government proposals to assist small businesses both through encouraging banks to continue lending to small businesses and by promising to bring down the length of time it takes public bodies to pay invoices, but small companies must not solely rely on these measures. Cash flow difficulties cause all kinds of headaches for businesses, particularly in this economic climate. The third quarter of 2008 saw 4001 compulsory liquidations - up 10.5% on the previous three month period.
What can businesses do to help alleviate the situation? • Terms and conditions of business
Check your terms and conditions of business. Are they up to date? Do they adequately protect your business? Are terms and conditions in place for each and every customer of your business? In particular check the payment terms. Do these suit the financial situation of your company? Consider having a corporate health check to make sure all the basics are in place.
• Decide what credit you are going to give each customer
Consider carrying out credit checks on your potential customers, particularly those who will be placing large orders.
becomes overdue. More often than, not the reason for non-payment is an oversight - if there was a problem with the service or product rendered then in most instances a complaint would have been raised straight away. A company’s bad paying habits may need to be ironed out so credit control meetings may need to be set up, payment terms changed for future contracts or a change to the credit given.
• Debt collection
Most businesses do not have the time and resources to deal with debt collection when it becomes clear that the third party is not going to pay the invoice and the matter looks as if it will lead to litigation. Think about sub contracting the work out to a specialist debt collection service. Most of these services are competitively priced and are dealt with on a fixed fee basis so one knows exactly what the costs are going to be. In addition be aware that it may be possible to claim extra interest pursuant to a 1999 Act of Parliament.
In conclusion, take control of the situation, make sure that the correct contracts are in place and that debts are pursued in a timely manner.
• Invoicing
Consider e-invoicing. It’s quicker and there is less likelihood of the invoices going astray. Make sure that invoices are correct before sending them out. Sounds basic but in recent research PWC found that 85% of the reasons given for non payment of an invoice related to its inaccuracy, for instance the invoice being sent to the wrong place or the invoice being for an incorrect amount. Also get to know your customer. Does your customer have a set day or days in the month when invoices are paid? Invoices should be sent shortly before the payment days to ensure that payment is made promptly and you are not left with a further month before payment is received.
• Chasing payment
Have strict procedures in place for chasing debts. The longer an invoice is unpaid the harder it becomes to collect. Therefore if payment is due after a month, ensure someone is chasing the bill the moment it
www.yourchoicedirect.co.uk