Not being paid on time is perhaps one of the most common problems businesses have.  Even for a successful company, delayed payments from customers can cause major headaches, especially during periods of growth when costs are increasing. 

However healthy your cash flow is, it’s always good practice to ensure you have the right systems and procedures in place to guard against any financial set-backs. 

 

Our top ten tips:

 

1. Choose the right payment terms - for companies selling products, payment terms are usually immediate, such as in advance at the time of the order, or on delivery.  For service companies, terms of payment tend to be 30 days, or less (depending on size). It’s worth asking customers for advance payments in certain situations, such as when you are delivering a large project or working for a new client.

 

2. Agree Ts and Cs - always have a contract and payment terms agreed in advance of a work order.  Otherwise you could experience delays and even non-payment if a dispute arises.  Agree your rates and the goods/service you’re delivering, as well as when you’ll be billing and your payment terms. Also, familiarise yourself with the accounting procedures that your customers have in advance. This is especially relevant when dealing with larger companies with Purchase Order systems.

 

3. Timely billing - ensure you issue invoices at the right time.  This will help reduce ‘lock-up’ - this is the time between when you have paid for  the goods/services you’re providing to when you get paid by your customer (i.e. the time that your cash is locked-up). Also, make it easy for customers to pay you.  Consider having a credit and debit card payment facility and use click and pay invoicing (this is where invoices are issued electronically with links to online payment providers, such as PayPal).

 

4. Use credit control Apps - consider an automated credit control system or App to chase up debts. These Apps work by reading your debtor ledger and emailing out reminders to customers who exceed their credit terms. Notices can be set to send out periodically until a payment has been received and then issue a thank you note.  Although Apps do not offer a complete solution, they can prove very effective, particularly where individuals prefer not to chase payments themselves.

 

5. Consider outsourcing – if employing a credit controller full-time isn’t cost-effective, it may be worth outsourcing your credit control to a third party.  Providers vary, but most offer access to a qualified credit controller/s, who can manage your debtors and chase payments up on your behalf, for a fixed monthly fee. 

 

6. Control overheads - review your overheads regularly to keep costs in check.  For example, outgoings for items such as postage, electricity, light and heating tend to increase over time, so it’s worth revisiting your options and providers.

 

7. Exchange rates - since Brexit, many businesses have been affected by the weaker Pound.  Although exchange rates aren’t fluctuating as much now, it may be beneficial for some businesses to buy foreign currency in advance.  Equally, if you receive payments in Euros, it may be worth considering when you will convert the money back into Sterling.

 

8. Finance options - ensure you have the right type of finance in place at the lowest cost; for example, there are a range of asset finance options to fund equipment purchases, or for business growth. Finance options include circle or crowd funding.  Also, look at any existing debt - are you getting the best rates and are debts structured in the best way? It may be better to consolidate several loans, for example.

 

9. Have cash reserves - it’s good practice to give yourself a ‘cash buffer’.  Debtor days are still high and although 35-60 days is average, up to 90 days is becoming more commonplace.  Putting money aside to cover your costs, including Corporation Tax and VAT, is sensible and ensures you don’t get caught out if your receipts aren’t as expected.

 

10. Forecast cash flow - annual cash flow forecasts can be very inaccurate.  Consider using short-term cash flow forecasts, which should reveal any pinch points more accurately.  There are a range of cash flow forecasting Apps available, which you may have access to already if you’re using a Cloud Accounting package. These can help you visualise and monitor cashflow over the coming weeks and months.

 

Every business is different.  The tips outlined above are provided as guidance only and are not intended to be used as professional advice.

For more information or advice on how you can improve your business cash flow, please contact Debbie Boulton on 01225 325580, or email db@richardsonswift.co.uk.