Almost half of small companies struggle to get customers to pay on time and over a quarter regularly ask to extend credit terms, according to research.
The study, conducted by business finance firm Hilton-Baird on behalf of the Asset-Based Finance Association, concluded that cashflow problems are likely to increase as the impact of the credit crunch, high interest rates and soaring energy prices hits the UK economy.
"This is likely to result in many UK small companies having to tighten their belts, particularly with customers continuing to pay late," said Alex Hilton-Baird, founder and managing director of Hilton-Baird Financial Solutions. "If they haven't already done so, companies should review the way in which they currently finance themselves."
Hilton-Baird offers the following tips on how to make the most of your cashflow:
Get on top of credit
control
Make sure that your terms and conditions are reviewed on a
regular basis and that invoices are raised on time. The sooner you raise an
invoice, the sooner you are likely to be paid. Make sure signed delivery notes
are collected. That way you reduce risk of disputes, delayed payments and the
debt not being paid
Put effort into
overdue balances
The cost of financing outstanding balances can be
substantial as the longer a balance is outstanding, the higher the risk of it
becoming a bad debt. Make sure you invest time and resource to reduce your
risk. It is worth bearing in mind that there are funding facilities which can release
the cash tied-up in your ledger and help your cashflow
Motivating the sales
team
Consider incentivising your sales teams to sell to customers
that will ultimately pay. While increasing turnover is important it shouldn't
be at the expense of profitability
Credit checks
Develop a habit of credit-checking customers before making
the sale as it pays in the long run. Also put key customers and suppliers on
constant review. This will alert you to any material changes to their business,
such as the late filling of accounts, change in directorships, downgrading of
credit ratings, change of address or change of advisers, which are all initial
indicators of instability
Share information
Don't be afraid to talk to your competitors about their
experience of selling to customers, particularly ones that you may share. Are
they experiencing problems collecting money? If so, you may wish to consider
your stance on supplying that particular customer. What are they doing to
address the situation?
Review funding arrangements
Ensure you review existing finance agreements with your
funders. Make time for a detailed check of loan agreements to see what facility
terms are and what security has been pledged
Shop around
Benchmark your existing funding facilities to see if you are
getting the best deal. You might be surprised at what deals are available
Correct funding
Make sure that you are funding the correct assets with the
correct finance facility. You'd be amazed how often this is not the case. Also,
ensure that your chosen funding facility is sufficient to meet your current as
well as future needs
It pays to talk
Funding providers don't like surprises. So keep them abreast
of good or bad news. They will appreciate your honesty and you will build
trust, allowing you time to work through the options
Take advice
If you are unsure about your next step in the wake of the
fallout from the recent credit crunch, then seeking independent advice is
recommended
