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Blog posts tagged cashflow

How to keep your business's head above water

January 13, 2014 by Robert Craven

How to keep your business’s head above water /drowning businessman{{}}I ask every audience I talk in front of one key question: “What’s the most important thing to measure if you want to find out how well your business is doing?”

And, without fail, people always come back to me with the wrong answer! They call out ‘sales’ or ‘turnover’ or ‘profit’, but they hardly ever mention the right and probably only answer that really matters – ‘cash’.

In reality, it’s impossible to carrying on trading if you run out of cash.

In the current economic chaos there are plenty of casualties, the weak and vulnerable businesses will go bust. More worrying is the profitable businesses that go to the wall because they run out of cash.

So, how do you keep your head above water? In basic terms, sell something people want; make sure the difference between what you buy it for and what you sell it for is big enough; find a way to get people to buy from you, take massive action. And, of course, make sure you collect all the money you are owed: 

  1. Measure cashflow like a hawk.
  2. Do your cashflow projections.
  3. Have clear credit terms.
  4. Check all new clients’ credit records.
  5. Have a rigorous process for invoicing, following-up and collection.
  6. Hold on to your cash as long as you can.
  7. Get yourself a decent accountant.

As a self-confessed serial entrepreneur I hate the detail and intricacy of putting cash-flow processes in place, but you can’t afford not to.

Blog supplied by Robert Craven of the Directors’ Centre, who shows MDs and business owners how to grow their sales and profits. His latest book is Grow Your Service Firm.

 Further reading

Things you should consider if you want to start exporting

January 08, 2014 by Guest Blogger

Things you should consider if you want to start exporting/container ship berthing port{{}}For many businesses planning for growth, exporting can seem a highly attractive, but sometimes daunting, opportunity.

According to the Department of Business Innovation and Skills, approximately one in five of the UK’s 4.9m SMEs already exports and the Confederation of British Industry says you’re 11% more likely to survive if you export. So, it seems natural for many SMEs to start trading internationally, especially since many have suffered from stagnation or declining domestic sales in recent years.

But there is a degree of risk. Among the cultural, legal and bureaucratic barriers sits the challenge of financing new oversee sales and ensuring that your cashflow remains healthy.

Beware the cashflow void

Standard considerations when you’re an exporter include taking a localised approach, adapting your pricing strategies, perhaps establishing a local agent partnership and seeking support from a foreign trade advisory service, such as the UKTI.

But SMEs are faced with numerous challenges and difficult choices, and you may need to make some adjustments and allowances.

Recent data from the Economia Exports Survey suggests that SMEs that are new to international trade (as well as experienced exporters moving into new markets) cite a number of success factors, including having the necessary finance (34%), the ability to manage payment risk (26%) and solid management and leadership skills (28%). Concerns associated with exporting include the cost (36%), not getting paid (29%) and risk control (29%).

The international market is highly competitive and credit terms offered to prospective new customers can be the difference between winning or losing a deal – especially when it comes to larger clients. When you are at the mercy of their terms, foreign exchange fluctuations and cashflow management can be an issue. Not only might you have to manage extended credit terms, but high-value material costs may also need to be paid up front, while goods will now take longer to be shipped to the customer. The result is a cashflow void, and small businesses need to have cash management strategies in place to lessen the negative impact this might have on them.

Financial flexibility and security

Short-term finance is sometimes necessary to bridge the gap between supply of the product or service and payment receipt. Traditionally, financial securities such as International Documentary Collections and Documentary Credits have offered exporters peace of mind, however, it is estimated that as many as 80% of exporters have moved away from these somewhat burdensome trade finance products. Instead, they are conducting international trade on the more cost- and time-efficient open account basis.

For small businesses trading with an overseas customer for the first time, trade finance might not offer much help if less than favourable terms have already been agreed. Similarly, an open account may be a risky option early on in the relationship.

To overcome the financial challenges of operating in foreign markets, invoice trading has emerged as a new form of trade finance and it allows invoices in foreign currencies to be traded. This means that businesses can remove the ‘cashflow squeeze’ that can occur in contract delivery.

Short-term working capital

The result is a flexible and competitive way to raise short-term working capital without having to sign lengthy contracts. SMEs can obtain up to 90% of their international invoices upfront from investors who understand the commercial realities of international trade and bid between themselves to provide the lowest cost finance. 

When essential cash is needed to finance paying upfront for materials and maintain a healthy operation until the end customer pays, invoice trading can provide a valuable lifeline.

Ultimately, the success of a business may be the result of taking a risk. In the context of international export, that risk may be the acceptance of a new, large customer. The right short-term finance and cashflow products in the form of selective international invoice sale and repurchasing can provide one of the building blocks for export success.

Blog supplied by Beth Nicholas on behalf of Platform Black, provider of complementary and alternative finance solutions including invoice trading, supply chain finance and channel finance.

Further reading

Four cashflow tips for seasonal businesses

December 12, 2013 by Guest Blogger

Four cashflow tips for seasonal businesses{{}}As the high streets prepare for a shopper-invasion and the countdown to festivities begins, businesses that traditionally feel the financial impact of the peaks and troughs of seasonal trading are once again preparing their strategies to manage cashflow.

Research published earlier this year by Santander Corporate & Commercial suggests that 61% of UK small and medium-sized businesses are impacted by seasonality – with 37% suffering as a result.

But the truth of seasonality is that it doesn’t always fall at Christmas, nor is it industry specific. For businesses across the country, delayed receipt of revenue and seasonal fluctuations in demand can lead to serious cashflow problems that existing finance arrangements cannot accommodate. Even for the most hardy business management team, a significant slowdown in business or revenue can make for a tough time.

Management strategies that have been agreed in advance can help to soften the blow when a seasonal dip is on the horizon. Here are four ways to stay on top of cashflow when things get tight:

1 Invoice smarter

One of the biggest issues facing businesses today is that of late payment. According to the Forum of Private Business, more than one million UK SMEs currently face difficulties with late payment – about 20% of the UK’s business population. The total amount of late payments across the UK now stands at just below £37bn.

Of course, you want to keep the customer on side and encourage future business, so a slick invoicing and payment processing operation can keep relationships harmonious and reduce the chances of late payment. Make sure invoices are sent out promptly, chase due and overdue payments regularly. Consider introducing an incentive scheme where discounts are given for early payment. Interest charges and financial penalties can be applied for late payments.

2 Project and plan

Cashflow forecasting, as part of the wider financial planning process, is essential for all businesses – not least seasonal ones. Healthy and detailed insight into anticipated fixed and variable business costs, set against data gleaned from your sales forecast, can help predict the future cash needs of your business and allow you to put financial back-up plans in place.

Not only will this process keep you aware of your business’s cash position at all times, it will allow you to creatively map and move around payments and budget allocation during leaner months.

3 Make your suppliers work harder

While you need to manage and improve cash inflow, there are creative ways of managing cash outflow, too.  

When entering into a new supplier agreement or looking back on existing ones that can be improved, make your suppliers go the extra mile. Negotiate favourable payment terms, work to drive down the price, arrange purchases on a sale or return basis, or settle on a bulk discount agreement. If you can, work to spread out recurring expense payments throughout the year so that they fall outside of your slowdown period.

Many vendors and suppliers are flexible, since it is in their interests to retain your business and put an affordable and sustainable agreement in place that will also prevent them receiving late payment from you.

4 Short-term finance for long-term effect

Seasonal trends are beyond our control. One-in-20 UK businesses closes their business during seasonal periods to reduce costs; 6% of UK businesses admit to relying on credit cards to manage seasonal fluctuations in supply and demand; 4% use business loans; while 17% either increase or decrease staff numbers.

For stability during seasonal slowdowns or growth management during speed-ups, short-term cashflow facilities can be an invaluable lifeline. These funds offer a precious injection to pay off creditors, pay staff and maintain an overall healthy operation.

In the £250-500k annual revenue category of businesses surveyed by Santander Corporate & Commercial earlier this year, 30% of those that suffered from seasonal fluctuation said invoice or supply chain finance was used to ride out seasonal downtime.

Invoice finance has now evolved through crowd-funding into invoice trading, a facility that creates a market between businesses and investors to give flexibility to businesses in need of short-term working capital finance, without the need for long-term contracts or a whole of ledger commitment.

Blog supplied by Beth Nicholas, writing on behalf of Platform Black, provider of complementary and alternative finance solutions.

Further reading

Cashflow management

The golden rules of starting and running a seasonal business

How I run my seasonal business

 

 

Mobile Chip & PIN payments: the secret to boosting your sales?

December 04, 2013 by Guest Blogger

Mobile Chip & PIN payments: the secret to boosting your sales?/male showing credit card{{}}Mobile Chip & PIN payments are becoming more popular around the UK. This is mainly due to the fact that they are an inexpensive and modern way to increase profit.

For a while now, small-business owners have been unable to accept card payments due to problems with traditional card readers. This is due to the fact that they involve lengthy and expensive contracts, monthly fees and equipment that is bulky and hard to transport. Mobile Chip & PIN payments solve this problem by providing a non-contract service, with no monthly fees and a sleek modern design that fits with any business image.

There is no doubt that there are benefits to employing mobile rather than traditional Chip & PIN technologies, however, you may be asking yourself why it is necessary to even take cards?

One reason is that accepting cards gives your customers the option to pay by a variety of means. This might sound like a non-issue, however, one of the biggest reasons that merchants loose business is interrupting “customer flow”. Specifically in the situation where a customer wishes to buy a product, but has no cash on them, if the customer cannot pay by card they simply have no option but to leave. In this case, the merchant has not only lost out on a sale, buhas also lost a customer whose opinion is valuable to your business.

This brings us to the second benefit of accepting card payments – customer satisfaction. Most businesses strive towards providing excellent customer service, after all, for small businesses referrals are often the best advertisements of all. Disappointing the customer by not offering a convenient way to pay may come back to haunt you by damaging your reputation.

However, the direct benefits do not stop at the customer. Taking card payments means that your business does not have to run the risk of having large amounts of cash stored, it also saves on daily trips to the bank to deposit the money. Perhaps the biggest advantage to a small business owner, though, is that is allows for more efficient accounting. By accepting more cards and less cash, it means that your transactions are easier to keep track of, which is vital for financial planning.

Mobile Chip & PIN payments are secure, with all reputable companies required to pass rigorous security checks and verifications. They are also convenient for both customer and merchant, and are a great tool to increase profit. So why not find out more?

Blog supplied by mobile card payment solution provider payleven.

How to save money and the environment by becoming a paperless business

November 06, 2013 by Guest Blogger

How to save money and the environment by becoming a paperless business/paperless office sign{{}}Becoming a paperless (or near paperless) business isn’t something that can be achieved overnight. It takes time, effort and patience from every member of your team. It was reported by The Guardian that more that 80 million tonnes of paper is wasted every year.

Going paperless will certainly benefit the environment, but what are the business benefits? Not only can it clear away clutter and create more space, you can also expect increased levels of productivity and lower long-term costs. So how do you become a paperless business?

Technology

The road to becoming a paperless business isn’t an initially cheap one. If you want to see results in the future, you have to be willing to invest in new technology now. After all, if you’re intending on banishing printing forever, your staff are going to need paperless alternatives.

If you invest in second monitors for your employees, they will no longer require printed documents to refer to as they work. Productivity will also increase thanks to shorter queues around the printer and the ability to multi-task.

Tablet computers are fantastic for displaying presentations, taking notes in meetings and referring to documents side-by-side while you work at another computer.

Cloud storage

If your filing cabinets are full to the brim, it may be time to start storing your documents in the cloud. All your files can be stored online and accessed anywhere, from any device. Services like DropBox and Google Drive allow you to save files online, eliminating the need for paper copies. You can also apply specific restrictions to the files, so that only certain documents can be accessed by certain people.

Finding documents becomes a lot quicker and easier too, because your employees can use the system’s online search tools. Staff members are able to access the files they need without leaving their desks.

Changing your printing habits

It’s time to clamp down on all unnecessary printing. Make it clear to your people that documents should only be printed if absolutely necessary. This is a much trickier process if you haven’t put new technology and other alternatives in place.

Take the time to look at your printing habits to identify particular bad practices or repeat offenders. Remove a couple of printers from your office and insist that documents are printed in mono and double-sided at all times.

Print management software allows you to take control of your printing output quickly and easily. It usually allows you to set monthly ‘printing allowances’ for each employee to foster better habits.

Rome wasn’t built in a day, so it’s important to remember that this process takes time. Stay positive and you will begin to see progress every day.

Blog supplied by office supplier Viking.

How to lower your business energy costs

July 03, 2013 by Richard Hughes

How to lower your business energy costs/energy chart{{}}In this economic climate businesses everywhere are looking at ways to lower their costs. Your electricity bill is an easy place to start and there are a number of ways you can save money.

Call your supplier

Talking to your current energy supplier is a great place to start. Most suppliers will be happy to discuss the tariff you are on and see if this is the best for your business. Shop around with other suppliers and energy brokers to see what’s on offer. Depending on what stage your business is at, it may be worth opting for a longer deal or something more flexible.

While talking to your supplier about tariffs, ask if they offer discounts for certain payment methods. For example, most energy suppliers will offer a discount or incentive for paying by Direct Debit.

Check your bill

Make sure you spend a couple of minutes checking your bill. Has your supplier billed you accurately on an actual read or have they estimated your usage? Check the read against your meter; it only takes a few minutes to send your read in. By giving regular reads you make sure your bills are accurate and that you only pay for the energy you use. Many suppliers are also letting customers trial a smart meter prior to government roll out, which will provide regular meter reads automatically, so ask your supplier if you can apply.

Energy efficiency

We have found that businesses are less likely to look at energy efficiency than our residential customers, yet there are some really quick and easy measures you can take, that can reduce the amount of energy you use:

1. Lighting

Approximately 40% of all energy consumed in buildings is used for lighting, so here are a few simple steps you can take to lower your costs:

  • Switch off lighting when you don’t need it (ie in spaces you’re not using and out of hours). Light sensors are readily available, so you don’t even have to worry about switching off manually.
  • Swap your light bulbs. Compact fluorescent bulbs are widely available in a broad range of shapes and sizes. They use 80% less energy and last up to 10-times longer.

2. Heating and cooling

Most of us take heating and cooling for granted. Come rain or shine we expect our building to be at a comfortable temperature. Many of the best practice principles are the same for both situations.

  •  Most heating and cooling systems are fitted with regulators and most of us don’t know how to use them properly, so get to know your controls.Set temperature controls to match the season and weather conditions.
  • Set time controls to match occupancy.
  • During colder months, keep windows and doors closed where possible and check to make sure they are properly sealed.

3. Office equipment

There are some really easy steps you and your employees can take together to reduce consumption.

  • If you’re gone from your desk for a while, switch off your computer or at the very least switch off your monitor.
  • Switch off any office equipment when not in use and at the end of day. Many still draw power even when they are in standby mode, this includes photocopiers and mobile phone chargers.
  • When purchasing new equipment opt for makes and models that have an A energy efficiency rating. These will improve your overall consumption for the lifetime of the product.

Blog supplied by Richard Hughes, Director of SME at EDF Energy, which offers advice to businesses about the best ways to save money on energy bills. For a free energy efficiency audit visit www.edfenergy.com/business-fit. It’s available to all small businesses – even those that aren’t EDF Energy customers.

Give your business the best chance of surviving when times are tough

June 19, 2013 by Chris Kenber

Give your business the best chance of surviving when times are tough/survival items{{}}Having walked past a shop called Recession this morning, I was reminded yet again about the tough times that small firms continue to face. All the small-business owners I meet through my work as a coach are really busy. They tend to work much harder than their counterparts in the corporate world and are frequently more motivated, too. There’s so much involved in running your own business – and not many people to help.

Here are my top six tips on how to give your small business the best chance of surviving when times are tough.

1. Spend 30 minutes each day thinking

It seemed to work for Bill Gates. He’s reported to have spent one month every year thinking up ideas for his business. Yet in a survey of 4,000 UK businesses, 95% of small-business owners didn’t even have a business plan. Owners spend all their time working in the business, leaving no time to work on the business. But failure to plan, as time-management guru Alan Lakein said, is indeed planning to fail. It’s like setting off on a journey without knowing the eventual destination – fun, perhaps, but unlikely to be effective. Just half an hour a day spent thinking and making plans will enable you to focus on what’s really crucial to the business. Urgent isn’t necessarily the most important.

2. Actively manage your cashflow

Failure to manage cashflow kills more businesses than anything else. Cash is king when it comes to the financial management of a business. The lag between the time you have to pay your suppliers and employees and the time you collect from your customers is the problem – and the solution is effective cashflow management. This means delaying outflows of cash for as long as you can, while encouraging anyone who owes you money to pay it as soon as possible.

3. Know who your best customers are

A simple analysis of your customers can be enlightening. Who are most profitable/most rewarding to work with/have the most potential? It’s said to be five-times more profitable to spend time and money on retaining existing customers than it is to acquire new ones. Michael LeBoeuf’s book, How To Win Customers and Keep Them for Life, highlights the reasons why customers leave - 68% of them because of an attitude of indifference shown by the owner, manager or an employee. Given this, how valuable it is to fold your customers in a warm embrace and love them to death.

4. Use social media

Social media is no longer the preserve of teenagers.  Indeed, it’s hard to think of a business that cannot benefit from using social media. LinkedIn, Facebook and Twitter are now essential tools to connect with customers, prospects and suppliers. Your competitors are already using social media to boost awareness, enhance reputation and win business. If (like me) you didn’t know where to start, make it your business to find out more about using social media for business. It could bring you many more sales.

5. Keep calm and carry on marketing

It’s no coincidence that businesses that increase and hone their marketing spend in a recession are those that emerge strongest when recovery comes. Bill Gates (yep, him again) famously said that if he was down to his last dollar, he would spend it on marketing. Research has shown that companies that increase their marketing spend in a recession recover three-times faster when economic conditions normalise.

People don’t stop buying in a downturn, they just focus on value and “out of sight, out of mind” still holds true. Customers will notice if your brand falls silent and will smell failure. So set objectives, be clear about what you want your marketing to achieve, and measure the results. The more you know about your customers, the better you will be able to target them successfully by understanding their problems and presenting appropriate solutions.

The internet – and Google in particular – represent cost-effective platforms. Used properly, marketing has the power to stop a business being caught like a rabbit in the headlights.

6. Outsource

Many small-business owners try to do everything themselves, which is plainly daft.  Even decathletes who train for years have events in which they perform better than others. No one can be a jack-of-all-trades.

How much better is it to defer to a bookkeeper or PR specialist than to attempt to muddle through yourself?  It can be immensely liberating to free yourself up to do the parts of the job that are most rewarding or to which you are best suited. Leave the rest to people better qualified than you. Smart business-owners know when to outsource, delegate or automate. You will more than make up the money it costs you through focusing instead on getting more sales or developing product or service enhancements.

By Bristol-based business coach Chris Kenber.

Further reading

 

How to maximise your turnover

April 10, 2013 by Clive Kahn

How to maximise your turnover/50 pound note{{}}Most business people have one aim when they launch a company – generate enough turnover to produce a profitable business. No matter which path they choose to achieve this, they will need to grasp the basics of their business in order to maximise their sales effort.

If you are preparing to set up a business, first do the following:

Define your proposition

Before approaching anyone else with your business idea you need to fully understand your business proposition. This sounds obvious; it’s your idea, after all. However, if you can’t verbally and succinctly convey your offering (in what is often called the elevator pitch), how can you communicate it to potential customers? It happens again and again. Entrepreneurs have great ideas, but wordy websites and offerings that are overly complicated and difficult to understand turn potential customers off.

Recognise the value

You know what you’re selling - now you need to consider why you’re selling it. What value does your product or service add that no other business does? Start by listing your differentiators and then think about how you can best explain your “value-add” to your prospects.

Identify your market

Your business may be amazing to you, but you’re not the customers. You must identify your position in the market and consider the size of your prospective customer base. This will help you to assess the potential and viability of your offering. You need to be realistic. If your plan shows you signing up more than 10% of your target demographic in the first year, you are likely being overly optimistic. If your plan depends on this to be viable, it’s not too late for you to go back to defining the proposition and start again in order to identify your market.

Route to market

Now you have the basics in place, begin thinking about your route to market. How will you communicate the values of your offering to the prospective customers you have identified? You can do this in a number of ways, depending on the type of product or service you’re selling. If you’re retailing products, you can open a shop in a location with a good concentration of prospective customers passing your shop front. If you intend to sell products online, you will need to develop a marketing plan to drive prospects to your site. Whatever you decide, make sure to do your research before committing any money.

Make sales

It’s time to make some sales and build your turnover. None of this messaging and communication will be worth anything if it doesn’t lead to converted sales, so be determined in your pursuit of leads and execute your sales well.

A word of warning – maximising turnover is not always best for your business. You need to ensure that your sales are profitable and convert to cash quickly. However, if you get the above basics right, you will be in the best position to succeed.

Clive Kahn is CEO of CardSave, supplier of card payment services to small businesses in the UK.

Why prevention is better than cure when it comes to getting paid

November 29, 2012 by Christopher Moore

Why prevention is better than cure when it comes to getting paid/stack of 1 pound coins{{}}When do you start chasing a late payment? When the work has been supplied? When the payment terms have passed? When your cash starts drying up?

Too many businesses believe invoice collection should begin when they are overdue. However, when some customers respond only to final demands the time between job completion and payment collection can stretch cashflow to breaking point.

Too many businesses delay collection because they are worried that asking customers to pay will drive them away. It is possible to cause offence if you go about it in the wrong way, but you could enhance the relationship if you remain professional.

Here are some credit-control tips intended to help your business:

1.   Decide on payment terms with clearly defined terms and conditions and stick to them. As long as they are communicated to your customers, they’ll be expecting you to follow up on any overdue invoices. If you are unsure what terms to use, seek expert advice.

2.   All new customers should sign a credit account application form. The signatory should be a duly authorised person who should sign below a statement requesting explicit acceptance of the terms, with particular reference to prompt payment. Any prospective customer who refuses to sign could provide a useful early warning for you.

3.   Check out the new customer with a reputable credit reference agency and set your larger customers up for monitoring so that any abnormal activity is spotted at the earliest point. This can help you avoid a bad debt. If an actual or potential problem arises, talk to your customer about how it affects your trading relationship.

4.   Every priced document (eg price lists, quotations, etc) should contain a direct reference to ‘prices subject to payment within our terms’.

5.   Don’t be afraid to reference prompt payment at the start of every new job or contract. At this point any customer-requested deviation from your standard terms should be confirmed in writing before work starts.

6.   It is good business practice to adjust your application for credit each year and send out a new copy to all of your active customers to sign, ensuring that you always have an up-to-date agreement signed.

7.   Avoid being subject to the buyers’ terms as printed on any written order by sending an order acceptance ‘subject to your terms of sale’. The last document that changes hands before performance of the contract becomes the contract document.

8.   If you are sending out a large invoice telephone your customer shortly afterwards to confirm receipt and acceptance of the invoice to highlight any problems early on.  If there are no problems you can confirm the payment date and their intention to honour their agreement. Telephone such customers shortly before the payment is due and seek confirmation it is being processed. If a query or dispute is raised, deal with it promptly and ensure that the customer accepts your response, thereby removing a potential block to payment.

9.   If an account does go overdue, ring the customer immediately, ‘We can’t trace your payment, can you confirm it has been sent?’ is less confrontational than ‘Your account is overdue’, but still requires a specific answer.

10. If your best efforts to obtain payment produce no results (and two broken promises to pay is a good indicator) consider what you need to do to protect your investment in that contract. When the terms, as detailed on your invoice are exceeded, send an account overdue letter. Seven-days later send a final demand and seven days later initiate full recovery. Maintain constant communication in between these steps.

Effective collection of money you are owed is vital, no matter how large or small the customer. Ultimately your first responsibility is to protect your business. The consequences of not acting for fear of losing a customer could end up seriously harming your business. It is how you go about it that can make all the difference. Consider your own reactions when suppliers chase you for overdue accounts. If they are rude or offensive you might seek to take your business elsewhere but, if their approach is at all professional, your main reaction may well be ‘What can I do to pay that?’

Christopher Moore is a credit management consultant at ICSM Credit.

10 top tips for avoiding bad debts

September 19, 2012 by Christopher Moore

10 tops tips for avoiding bad debts/Pencil erasing the word debt{{}}

Since the credit crunch first began to bite, some UK businesses have had to extend their agreed payment dates and terms, which means that some firms now face waiting as long as five months for payment. The average time it takes for businesses to settle their bills after agreed terms has also extended. Consequently, businesses must ensure their billing process is effective when it comes to overdue payments.

By addressing issues such as cashflow or order book problems early enough, businesses can stop them from escalating. But what action should you take and when do you need to start? Many businesses are too wary of being over-zealous when chasing payment so as not to upset a customer, but avoiding the issue could have a catastrophic effect. Here are ten tips for what to look out for and what steps to take:

1 Know your customer

Whether the customer relationship is new or long-standing, regular credit reports are essential. They are quick and cheap and enable you to be fully informed of any changes with the business. Perhaps you could use a particularly large order as a trigger to run a check or simply implement one every quarter or six months. As well as granting peace of mind it limits your exposure. The next stage is to identify and weed out any high-risk business prospects.

2 Assess payment behaviour

Keep an eye on changes in payment patterns, times and delays, as well as a move from BACS to cheques. These small factors can indicate something is happening behind the scenes. It doesn’t hurt to call the customer and have an informal chat, just to make them aware of your interest. These checks can also indicate how long you will be waiting for payment. Also be aware that bills being settled later and later each month is a key indicator of a business’s deteriorating cashflow.

3 Introduce changes

Your customers may just have a culture of late payment but to combat this, steps should be taken to encourage faster payment, such as direct payment methods or more creative collection strategies. Also monitor CCJs, because these can be a trigger to exercise some caution and review the relationship before extending credit. 

4 Carry out checks

Regular company credit checks will also highlight small but possibly significant changes, such as who is on the board and any alteration in the addresses of those members. Also for smaller and newly formed companies, cross reference consumer and business information to build a picture of the personal and wider business interests and the track record of those running the business. Knowing what happened in the past creates confidence in future co-operation. When financial details are limited this can be the best indicator of a business’s commercial integrity.

5 Revise regularly

The validity and worth of credit reports lies in their frequency, which could be related to the value of business done, the importance of the account or the volatility of the market they are in. There is no point running one at the start of a working relationship and believing that will ensure there is no risk.

6 Be aware

Be mindful of external economic pressures because if you are feeling them you can be sure your customers are, too. The warning signs these present can be more effective than any internal procedures and controls. There is help - use the credit community, it's what it's there for; share information about your debtors and listen to what other industry people have to say.

7 Be accountable

Often businesses with poor trading results tend to delay submitting their accounts as long as possible. Experian research has shown the late filing of annual returns, which is a statutorily required list of directors and shareholders, is a characteristic of failing companies and at the very least can indicate a level of management inefficiency within the business.

8 Keep talking

Keeping communication lines open is key. As long as businesses are talking to their customers, resolutions can be swiftly and easily achieved without the need for legal action that can prove costly.

9 Take action

Don't delay. It’s tempting to wait and hope the payment will be made, but if the process is not started immediately, resolutions will take longer, putting cashflow under greater pressure and leaving you more vulnerable.

10 Call for help

While a business that can demonstrate a clear action plan is in place and was adhered to will more likely achieve a successful outcome, don’t be afraid to ask for help and advice. A quick chat with an adviser could help you identify the next most appropriate step. For example, a legal letter might be enough to bring the matter to an end.

Christopher Moore is the Marketing Manager at ICSM Credit

 

Spend wisely at the start

July 28, 2010 by Chris Barling

When starting a new business, the way that you spend your limited resources is critical to your chances of success. There are places where you can’t afford to scrimp, and there are places where you simply must not waste. You need to keep the chance of failure down by spending what you have very wisely.

  1. For a business with any risk, forming a limited liability company is a must. Then if the business goes down, loans and debts owed by the company won’t follow you. So set up a company by searching for “Company formation” on Google. It’s unbelievably cheap.
  2. There are other things to consider too. You need to keep all of your paperwork, including sales invoices and supplier charges, so that you will be able to do accounts and tax returns. But this doesn’t mean setting up a complex and expensive accounting system. It means employing a cheap book keeper for a few hours a week, or even keeping all of the paperwork in one tidy pile, so you or an accountant will be able to do the accounts when the time comes around.
  3. Registering for VAT, the Data Protection Act and possibly other specialist health and safety laws are other start up activities. Do these at the minimum possible cost and effort. These are overheads, not keys to your business success. You can nearly always find out everything you need to know with a few hours of research online. Everything possible like this should wait if it can.
  4. Don’t spend money on things that you don’t need yet. In a start up situation, tomorrow can take care of itself. The critical thing is to concentrate your money on getting your product right, making sure that your customers are happy, then selling like crazy. This is much more important than a slick operation. I’ve seen a number of people spend precious resources on preparing for massive success, only to have that success elude them because not enough attention was paid to sales growth.
  5. When you have a growing business with satisfied customers, then it’s the time to get better organised. As you grow, you will need to invest in systems to maintain quality, and you should also be able to drive down costs as a proportion of your sales. But all of that is for later.

It sounds easy, which it isn’t. However, following these tips will increase your chances of success. Good luck.

In summary:

  • Spend the minimum on being legal and decent
  • Focus on getting something customers want, and make sure that they are happy
  • With that core in place, sell, sell, sell
  • With sales growing strongly, invest in operations to maintain service and reduce costs

Chris Barling is CEO of ecommerce software supplier Actinic

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How to manage your cashflow

June 16, 2010 by Brendan Flattery

Brendan Flattery, managing director of Sage’s Small Business Division, answers some key questions about the importance of maintaining healthy cashflow.

What is Cashflow and why is it important to SMEs?

“Any successful small-business owner will tell you that healthy cashflow is critical to the smooth running and growth of their business. It’s been a challenging time for all businesses recently, regardless of size, and one that will have a lasting impact on the way businesses structure and manage their operations. One of the key lessons that many small businesses have taken from the recession is the importance of healthy cashflow.

“Put simply, cashflow is the movement of money within a business, but this seemingly straight forward concept can have detrimental effects if badly managed.”

What are the likely consequences of poor cashflow management?

“Healthy cashflow is vital for all businesses, but the consequences of not managing it effectively can quickly have a massive impact. A small business can only survive for a limited period with a negative cash flow. Ultimately, the business will end up insolvent, which means it will fail because it won’t be able to pay its creditors.”

How can SMEs monitor their cashflow?

“Cashflow forecasting software is an important business tool that can not only show payment patterns and forecast the year ahead, but also highlight re-occurring late payments.

“It’s been widely reported that most failed businesses have closed because of problems caused by inefficient cashflow management rather than anything else. If small businesses put into practice the correct processes they will be able to manage their financial planning effectively, forecast the year ahead and identify any potential cashflow issues early enough. Then they can take action to avoid any anticipated downturns. More effective cashflow management will help stabilise the business, as well as ensure the business emerges from the recession in a stronger position and cash positive.”

How will monitoring and planning cashflow help?

“Julia Boggio Photography is a Sage small business customer. The business has experienced first hand why accurate cashflow forecasting is a must. They used Sage 50 Accounts forecasting tools. MD Julia Boggio says:

‘When I was reviewing our cashflow forecasts in November of last year, I could see there was a dip due in February. We reorganised our finances, cutting down on advertising and came up with an alternative contingency plan, which we put in place. This ensured we were well positioned to account for the dip and even enabled us to have a better February than the previous year.”

What impact do late payments have to a small business?

“More than half of the 2,000 small businesses polled by Sage in our monthly Omnibus survey said they had been impacted by late payments over the past year. The Department for Business, Innovation and Skills reported that more than 4,000 businesses failed in 2008 solely because of late payments.

“It is critical that start-ups and all other businesses to remain aware of exactly how much money they are owed and when payments are due. This helps to prevent late payments in the first instance. However, if they do occur, good management can ensure that they do not have a damaging effect on the business’s overall cashflow. These are all aspects that business accounting software can help you get to grips with.”

What are your top tips for maintaining healthy cashflow?

“Make sure all your employees – if you have any – are kept informed about the state of the business’s cashflow. This will hopefully prevent them from making purchases your business cannot afford. At times you might be waiting for a large invoice to be paid, so you may have to put spending plans on hold.

“Create accurate cashflow forecasts for the year ahead. It will enable you to plan for the future. Forecasts allow you to identify potential cashflow crises, for example, be identifying periods when your costs exceed your revenue. At such times, your business might need to seek financial help. To be fore warned is to be fore armed.”

Brendan Flattery is the Managing Director of the Small Business Division at Sage UK and Ireland

  • Visit the Sage website to download its guide to effective cashflow management.

Getting to grips with cashflow

March 19, 2010 by Brendan Flattery

Cashflow is the lifeblood of any organisation. Getting it wrong means that your business will fail, but getting it right at a time of economic uncertainty is a significant challenge.

Having a healthy cashflow is crucial for all companies, but can have a massive impact for start-ups. A new business can only survive for a short time with a negative cash flow, and ultimately the business will end up insolvent. Start-ups must adopt processes to help manage their cashflow from the moment they are set up.

Late payments are a significant problem for entrepreneurs to deal with. Half  of the small businesses polled by Sage in its monthly Omnibus said they had been impacted by late payments over the last twelve months.

For start-ups waiting to improve their business cashflow, there are a number of steps to take, including:

Know where your money is – It sounds simple, but a lot of small businesses will fail because their owner doesn’t keep a close eye on the funds coming in and out of the business. That visibility is best achieved by maintaining regular updates on your cashflow forecasts.

Know your customers – Many businesses have a set date for paying invoices, learn when these are for your customers and record the date. If the date passes and you are yet to be paid, then there is a good chance that something is not right and you can follow up with your customer.

Set-up an online automated contingency plan – This will help you actively manage your cashflow. It is critical that start-ups remain aware of how much money they are owed and when payments are due, so that late payments do not occur in the first instance. However, if they do occur good management can ensure the late payment does not have a damaging effect on the overall cashflow. These are all aspects that business accounting software can help you get to grips with.

By implementing theses correct processes a start-up will be able to manage their financial planning effectively, forecast the year ahead and identify any potential cashflow issues. By following these guidelines and implementing the right software, businesses can make sure they remain strong and cash positive.

Brendan Flattery is the Managing Director of the Small Business Division at Sage UK and Ireland.

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In a muddle with your numbers? Pick up the phone

September 14, 2009 by Kate Horstead

One of the first things you need to do when you set up your own business is to find yourself a good accountant. However simple or complicated your business’ finances are, you are going to get yourself in a muddle if you don’t know exactly what you need to record, how to fill in your tax returns or when to file your accounts.

Speaking to the Institute of Chartered Accountants in England and Wales (ICAEW)’s Clive Lewis the other day, I learned that many start-ups don’t use their accountant as much as they could or should.

You should be able to rely on your accountant to be there for you if you call up with a query about your book-keeping, however trivial it may seem, or if you have a sudden change of circumstances – for example if a client suddenly puts in a big order and your cashflow is thrown off-balance. They should also be reminding you of deadlines for self-assessment or, if you’re a limited company, when your accounts are due to be filed.

There is certain information your accountant will need from you in order for him or her to understand your business and do your accounts for you, too, but again, a good accountant will tell you what they need. According to Lewis, your relationship with your accountant should be a long-term one with regular contact.

Ask other business owners you know who they use, or visit one of the accountancy associations’ websites to do a search for your local accountants. Even if you have a good brain for maths, you still might need somebody to hold your hand while you work out how to use your new accountancy software. Ideally, you will choose an accountant who has previously worked with other businesses of your size and in your industry.

So, don’t be shy; pick up the phone and ask away. And if the person at the other end doesn’t want to help you out, take your fees elsewhere and find an accountant who will make life easier for you.

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