I’m sure you will have heard the phrase ‘cash is king’ and in practice it is a core business principle.
Good cash management is vital for growth and generates confidence with lenders, customers and suppliers.
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The reality is that more businesses fail through lack of cash than lack of profitability. The approach to cash management is not just part of the preparation for taking on new investment and debt it is a procedure that must be ongoing. Management must have an understanding of the amount of cash and working capital required to operate the business.
The keys to robust cash flow controls, are:
1. Basic credit checks
Companies should be taking actions to check who they are going into business with as a first line of defence. You can search for any company in the UK or abroad, to find out how long they have been around, level of credit risk, their ownership, payment patterns and much more. This will provide you with the confidence needed to decide whether to supply goods and offer credit.
2. Agree payment terms up front
Don’t just assume that your customers will pay up by a certain date – instead agree terms before doing business with them. If you don’t agree a payment date, the default period set by law is 30 days.
Think of it as a loan. If you need help in understanding the steps to take to agree terms with your customers, please contact me or call me on 07778 999888 for an initial discussion, free, with no obligation.
Automated payment methods should be used wherever possible to help increase speed and certainty of payment.
3. Maintain an ongoing dialogue
Send out alerts and payment reminders ahead of the due date. If you don’t get a satisfactory response, telephone the customer and firmly but politely ask why they haven’t paid. Aim to get a firm commitment for when they will pay. Confirm in writing what has been agreed.
4. Consider using specialist collection agencies
Not everyone wants to get involved personally in potentially awkward and confrontational conversations with customers they want to keep a relationship with. You can use a debt collection firm either on a one-off or regular basis depending on cost.
For help finding a reputable debt collection agency or local solicitor who specialises in debt recovery, and for help and advice on negotiating with creditors, please contact me or call me on 07778 999888 for an initial discussion, free, with no obligation.
5. Continuous checking and vigilance
Prevention is always better than the cure, so make sure you have a system for tracking outstanding invoices. An online accounting package will usually have a facility to generate customer email reminders for overdue payments.
Take action as soon as a payment date is missed. If the customer is genuinely having financial difficulty, you might want to allow them to pay in monthly instalments. If the customer continuously fobs you off or fails to honour agreements, you should consider taking legal advice.
I can introduce you to local solicitors who specialise in getting your money back quickly and cost-effectively.