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Cash is King

“turnover is vanity, profit is sanity, but cash is reality”

This has never been more true than it is today and lack of cash is the number one killer of small businesses. Recent times have seen a tough economy, meaning customers will pay you more slowly and suppliers will want you to pay them more quickly.

So what measures can you put in place to keep on top of your cash flow and maintain a healthy business?

Do your homework…

New business is great, lots of lovely new customers to boost your sales, you’ve never been busier.  So your business must be succeeding! Not necessarily…..

Did you check the credit worthiness of that new client? Don’t leave it too late to find out that they are consistently bad payers. Credit check new clients, using an online agent such as Experian or Equifax.

Make sure that you have a good contract in place, outlining your terms of business.This puts you one step ahead of those new customers with a poor credit history.

Get those invoices posted… and check that they have been received

It’s surprising how many businesses fail to prioritise invoicing. Don’t put it off until next week, do it promptly, regularly and efficiently. Invoicing promptly is integral to keeping your cash flow healthy. A courtesy call a week after issue of the invoice to check they have received it and that everything is in order is perfectly acceptable, at the same time why not ask for an expected payment date?

Keep your finger on the pulse…

It’s easy to fall behind with your bookkeeping, as a busy business owner there are a million and one things to do and the accounting side of things can easily become an afterthought. Keep on top of your business records and you will be well informed and able to identify those outstanding debtors quickly.

Review your client base, take time to have a good hard look to establish which clients are poor payers and those who can’t pay or simply won’t pay. Problem clients will drain your resources, using valuable time that you could be spending on those good clients, who will gladly pay for your services.

The early bird catches the worm…

So, the clients are credit checked, you’re on top of your bookkeeping , your invoices have been sent on time, you’ve checked that they have been received and there are no queries. What next? Credit control.

Credit is made up of two elements, time and amount. Of these two factors, time is the more important. £6,000 outstanding for 6 months is a greater risk than £10,000 outstanding for 2 months. Therefore it is important that your credit control system is designed to ensure that:

  • Goods and services are invoiced on dispatch.
  • Potential problem accounts are spotted as early as possible.

More often than not, organising your credit control leads to a balancing act between the risks of not pushing the customers too hard so that they won’t do business with you again, and not being paid.

Remember, prevention is better than cure for your cash flow to remain healthy.

  • Send statements

Statements scoop up the details of all outstanding invoices for your debtors. They are not a demand for payment, merely a summary of their account. Most customers will check through the statement and hopefully this is the point at which any misplaced invoices are recognised and a copy requested.

  •  Follow up prior to payment date

 A week before their anticipated payment date, give them a call to confirm that the payment is scheduled as promised. This also serves as a double check that the invoice hasn’t been lost or misplaced, one of the most common excuses for late payment.

  •  Payment overdue? Chase by telephone

 At this point, you’ve already removed those typical excuses for not paying in your previous steps, so at least you’ll get to the root of the problem and not just be the victim of delay tactics.

Some businesses develop the ethos that they only pay when chased. Unfortunately it has become the reality that some companies do in fact expect to be chased.

Chasing debtors by telephone can be more effective than by any other means. Chase oldest debts first in a firm but friendly manner. A gentle reminder that you could actually charge interest on late payment can sometimes help.

Follow up with emails and/or letters to confirm what has been said.

The key point here is to make yourself visible, heard and noticed by your client. By gaining a reputation for pro-active credit control this tells your clients that you are running an efficient business with good systems in place.

Give your clients lots of options…

Or looking at it another way, make it hard for them not to pay!  Why not consider extending your range of payment options.  Facilities to take payment by credit card or Paypal can be added to websites, or you may wish to include your bank details on invoices to allow electronic payment transfers to be used.

Keep one eye on the cash flow…

Daily, weekly or monthly, make sure that you keep your cash flow forecast bang up to date.  Keep the forecast on a simple spreadsheet, listing expected cash in and then all the outgoings that you’ll need to make over the next 12 months.

Stay realistic, customers will always aim to pay later than you anticipate, so don’t build unrealistic time-scales in.  By extending the forecast over 12 months, you can quickly identify any problem months and prepare a plan of how you’ll tackle any predicted shortfalls.

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2 replies to “Cash is King

  1. This is excellent advice and I’m going to put a link to it all over the place. There’s nothing like keeping on top of things to help you know where you stand. I update my spreadsheet every time I get a payment in and make out out – so every day I know exactly what my profit for the financial year is, and how I’m doing against my targets.

    It’s like housework: doing little and often is far easier in the long run than letting it all build up.

    I invoice most of my regulars monthly, so I schedule time on the last day of the month to send out the invoices, but if they’re people who have lots of little jobs through the month, I will have created their itemised invoice as I go along, so it’s just a question of assigning its number and adding up the total at the end of the month.

    • Thank you for your comments Liz, much appreciated. It’s lovely to see that you are so organised and I totally agree, tackling your business records on a ‘little and often’ basis really does help.

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