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Firms must tighten cashflow

That is the advice from Business Link in the wake of new research (the South East Business Monitor, fieldwork dates November/December 2007) showing that ensuring prompt payment from customers is a key challenge for nearly half (45 per cent) of companies in the South East.

Business Link marketing manager Elaine Whittaker (pictured) said: “The old saying that ‘cash is king’ is as true now as it has ever been. Money is no use to a business until it is in the bank and it is poor cash flow that is the biggest single killer of otherwise viable businesses.

“Even companies that have never had any problem with cash flow or credit control need to have systems in place otherwise the loss of a major customer or events over which they have no control – such as the current credit squeeze, a problem that has its origins on the other side of the Atlantic – can have serious knock-on effects.

“And the start of the new financial year on April 6 makes for a good opportunity for company bosses to set themselves a financial resolution and to make sure they have robust credit control systems in place.”

Business Link recommends that companies should have at least some of the following credit control procedures:
• Carry out credit checks on new customers before supplying them with goods and services
• Be clear right from the start about your terms of business
• Make sure the goods and services delivered are as specified – so there is no excuse to query the invoice
• Send your invoice promptly and check it has arrived
• Keep an aged debtors ledger so you can see at a glance who owes how much and from when
• Two or three days before an invoice is due to be paid, phone to make sure that payment is set to be made
• As soon as payment is due, send a statement
• After a fortnight, telephone or send a letter; if necessary follow this with a visit
• Consider charging interest on the late sum – as allowed under the Late Payment of Commercial Debts (Interest) Act 1998
• Make use of technology – send invoices by email (they won’t get lost or held up in the post) and ask for payment by BACS CHAPS to prevent the risks associated with bounced, missing or lost cheques
• Carry out monthly cash flow forecasts, more often during leaner periods

If cash flow forecasts show that money is likely to be tight in coming months, Business Link advises keeping your bank abreast of the situation and also considering options such as factoring and invoice discounting.

Elaine said: “Don’t hide from financial problems – confront them and once you have a system in place it is relatively easy to keep on top of your debts. The benefits will include being able to reduce your borrowing, less stress and a more dependable supply of cash.

"And you will be at the front of the queue when your customer is paying his bills – because it is the businesses that chase for payment that get paid first.”

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