Is your cash-flow under control?The principle of business is simple, we supply goods and services in exchange for payment. The problem comes when we feel embarrassed or want to “help” our customers by letting them pay us late. This is invariably a mistake. If your customer gets into trouble, and you are willing to be the last in line to get paid, you may simply never get paid. Instead, your business goes into debt even further.
You don’t need to use invoice factoring or fancy debt collection companies (although they can be very helpful in some circumstances). You can get control of it yourself. Here are seven simple steps to make it happen.
1. Use proper accounts software. There are businesses with turnover of over a million pounds that run accounts with simple spreadsheets – a recipe for disaster. If you can’t do this yourself, get a bookkeeper to do it for you.
2. Put in place a solid process for credit control. Let your customers know when they are due to pay. Gradually get less friendly and more formal the more overdue an account becomes.One effective credit control system uses three standard letters – friendly, formal and final. It gets amazing results.
3. Review your aged debtors report regularly. This is the report that tells you how much your business owed that’s now overdue. If your terms of business are 30 days, you should expect to be paid within 30 days. Any longer than that and you’re providing your customers with a free loan!
4. Vary your terms for bad payers. Where customers persistently pay late, make them pay up front, or stop deliveries until they’ve paid.
5. Make credit control somebody’s main job. If this is not done well, your business will never run well. Who is responsible for getting the money into your bank – make it a clear responsibility for somebody and you’ll sleep easier every night.
6. Renegotiate terms with suppliers so that you have longer to pay. If people are slow to pay in your industry and you can’t change that, put the pressure further up the chain with your suppliers so you don’t get squeezed in the middle.
7. Manage your inventory down to a minimum. You can implement Just In Time techniques to help you dramatically cut the stock levels without the risk of running out.
Is managing the cash-flow a problem in your business? Need help to bring it under control? You’ll be surprised how quickly we can sort your cash-flow issues.
Thanks to Lee Duncan for the above.
Call now on 01423 550175 for a quick, informal chat to learn how Harrogate Business Advisors can improve your cash-flow and increase your profits.