Why is cashflow so important?
How do I go about making sure I get paid?
Where can I get help and advice on credit control?
Why is cashflow so important?
Half of all new businesses fail during the first two years (based on VAT figures).
All too often the cause of failure is not the quality of the product or service, the effort and talents of people, or the sales and marketing. It is quite simply financial failure, running out of money - leads to closure, if not bankruptcy. In many cases failure could have been avoided by simple but effective planning from the start. In too many new businesses people enthusiastically develop their goods/services but pay insufficient attention to cashflow. Late payment erodes the profit, stifles future growth and can destroy a small business. A sale is not really made until it has been paid for.
The discipline of ensuring prompt payment is called credit control or management and has to be a priority if your business is to succeed. For many businesses, the money owed to them by their customers is their largest asset. Reducing the amount owed by debtors reduces the overdraft and frees up capital to be used to finance the business and also reduce the stress levels!
How do I go about making sure I get paid?
Granting credit to a customer involves the risk of non-payment and so should only be done after checking and assessing that risk.
It is important to establish a potential customer's credentials and a visit to their premises will usually tell you a lot. Always confirm that the customer exists at where it says it exists. Always confirm addresses to avoid fraud and see how long they have been trading from that address. Also confirm that they have the cash to pay through a credit reference company - they will suggest a credit limit and a credit rating. For potentially high value orders, take a credit report prior to negotiation, to avoid wasted effort. Credit costs and knowing the risks in advance helps in pricing.
From the outset, establish procedures for credit applications by customers and remember that credit control is a continuous process. Always monitor your debtors as their circumstances may change.
Where can I get help and advice on credit control?
Your local Chamber of Commerce will run training schemes in basic credit control, including such topics as how to collect debt over the telephone. The Southampton and Fareham Chamber of Commerce and Industry, Bugle House, 53 Bugle Street, Southampton, SO14 2LF, Tel: 023 8022 3541, has a programme of training sessions which includes this topic area as well as many other subjects relevant to businesses. These courses are open to non-members.
Advice on chasing outstanding debts can be found in the publication 'Better Payment Practice : Your Guide to Being Paid on Time' and from the government sponsored Better Practice Group www.payontime.co.uk. Other useful links for sources of advice are:
- Southampton and Fareham Chamber of Commerce and Industry - www.soton-chamber.co.uk
- The Institute of Credit Management - www.icm.org.uk
- The Factors and Discounters Association - www.factors.org.uk
- The Federation of Small Businesses - www.fsb.org.uk
You may also like to contact your local Enterprise Agency or Business Link who will be able to advise on your credit management.
www.swhea.co.uk
www.businesslinkwessex.co.uk