Any small business owner will know that cash flow is the key to survival in the current downturn.? Nic Beishon, from business information experts Equifax, looks at ways for businesses to manage cash-flow and outlive the recession
One of the most common causes of business failure is a shortage of cash to pay invoices, rent and other bills.? And with new lines of credit now harder to find than ever before, businesses are finding it increasingly difficult to pay bills.? That means receiving payments from customers is proving problematic, too.
So it’s absolutely vital to keep a close eye on the financial status of existing and prospective customers and suppliers to protect your own cash-flow.
Pretty much everyone knows that carrying out credit checks on new customers and suppliers is essential. But right now, it is also crucial to stay up to date with their current financial status too. For example, if a customer has received a new CCJ (county court judgement) or a lower credit limit, appoints a liquidator or changes their registered address,that could be an early warning not to extend further credit to them and trade only when receiving upfront payments.
How to keep the cash flowing
1. Know your customer – Make sure you look at the financial credibility of the people behind a business, not just the business itself. If you don’t check out the individual you may suffer through bad debt or corporate fraud and this could be the difference between success and bust in 2010.
2. Credit checks – Do credit checks to protect cash flow and avoid bad debt. And carry out ongoing credit checks – or sign up to a monitoring service – to help identify changes affecting the financial status of your customers so that you can stay one step ahead to avoid future cash flow problems.
3. Keep an eye on your on business – As well as keeping a close eye on what customers and suppliers are doing, make sure you monitor things closer to home. Knowing how other businesses or lenders might view your business is crucial to make sure you can get access to the services and funds that you need.? So it’s wise to obtain a copy of your own business report at least once a year.
4. Cash flow – Consider using a cash discount system to encourage sales invoices to be paid faster. Late payments can have a serious knock-on effect on profitability, especially when credit availability is much reduced and lenders are less lenient with those making late payments.
5. Know your debtor – When collecting debt, be aware that the behaviour of customers could change radically from month to month, depending on their own business circumstances.? So make sure you know who to chase for debts in each customer organisation so that every chasing call achieves a good result.
6. Payment problems – If a customer is unable to pay for any reason, look into the possibility of receiving part-payment, as it is better to receive a smaller amount than expected, that to receive no payment at all. Also, if a customer begins to make late payments on a regular basis, consider implementing incentives such as discounts for making payments on time in future.
