Monthly Archives: October 2016

Stand and Deliver!

If you’re in business the chances are you love sales.

Sales mean customers value your hard work, your innovation, your creativity – what’s not to love?!Cash is king for business

In the modern world very few businesses sell without offering credit to their customers. (If you’re a retailer who accepts cards then potentially someone else offers credit to your customers…)

In this case more sales are good but what you really need to focus on is more payments from customers.

One of the things I’ve noticed is that when businesses grow everything gets busier. It’s amazing how sales go up and all of a sudden customers take longer to pay. When you send out more invoices somehow more go missing in the post (*although this might just be an excuse for late payment…).

The result of this is that although you are busier, needing to buy more materials and pay more wages there may not be any more cash at hand to pay the bills.

So how do you manage customer credit? Here’s my action plan:

PREVENTION

Make sure you have chosen to offer credit to each customer, not just let them have the goods on a promise that they’ll pay later.

Do you know the customer? Have you done business with them before? It seems simple, but first impressions from a face to face meeting can tell you a lot about the customer.

Also take time to look at their business premises, does it look organised and well looked after?

Using credit applicationsYou probably have a new customer form to record delivery and contact addresses etc. It’s a good idea to include your standard payment terms (eg 30 days) and ask for trade references from existing suppliers.

Credit checks can also be helpful, and there are a huge number of different agencies who offer these services. However the best option is to make the decision based on your own impressions.

UP TO DATE

This is the number one thing about accounts – you can only make good decisions if your information is up to date. It’s worth paying for a book keeping service to make sure that you can rely on your accounts.

INFORMATION

Once you’ve offered credit to customers and your accounts are up to date you need to keep track of who owes what:
– How much do they owe?
– When did they last pay?
– Are they buying regularly but not paying regularly?
– Have they been buying regularly and then stopped, without paying what they owe?
– Are there some invoices which seem to have been overlooked for payment? (Maybe they have genuinely been lost in the post?)

Don’t let issues go unchecked. Maybe this seems arduous, but this information should mostly come from your book keeper/ accounting software.

COMMUNICATION

It’s important to share some of your information with your customers.
– Send out statements regularly, at least once a month.
– Send copies of old invoices if they appear to have been overlooked, email makes this really easy.

If it’s proving difficult to get money out of certain customers you need to rely on the personal relationship we discussed before. Phone contact is usually more effective than letters, it is harder to ignore.Keep up phone contact with customers

On the phone, be realistic. Being rude might get you paid this time, but will probably not keep the customer in the longer term.
Ask what the situation is, is there a problem? Try to respond creatively to what you’re told – if bills are paid on a certain day of the month you could work around that. If there’s a hold up due to a delay in your customer’s customer paying you could take that into account.

Do keep a record of your conversations though; do you always get the same excuses or the same promises? If you end up needing to consult a solicitor because you can’t get the customer to pay you will need to have a record of what you have done to try to recover the debt, but this is the very worst case scenario. Cash is king

It really is worthwhile thinking about your process for keeping track of customer credit – you’ve already done all the hard work to find the customer and make the sale so getting the payment is the final piece of the jigsaw.

It’s all about the money, honey

If you’re in business the chances are that you need to make money.

The aim of the game is to have something left after all the bills are paid whether that’s because you want something for yourself, to pay dividends to investors or, if you run a social enterprise, to do some good for the wider community.

Cash in business Quite often I hear the complaint “We’re not making any money” but what does this mean? There is no point in any business at which money is actually made!

In simple terms we think of “making money” as making profit – when sales income is more than all the appropriate costs.

What people actually mean when they say they are “making money” is that there is plenty money in the bank to pay the bills that come in. Making profit doesn’t always mean that there is money in the bank.

In business nowadays the chances are you buy on credit, and you offer credit to your customers and you buy more stock that you need straight away so that you always have something to sell. All these things separate when the money is received (or paid) from when the sale actually happens.

So making money is actually more to do with generating cash.

Cash is king for businessIn basic terms, a business which consistently makes losses will only be able to pay all of its bills if there is extra cash being provided from somewhere else. If my costs come to £5,000 but my sales are only £4,500 I won’t be able to pay all of my bills, there will need to be a bit of negotiation with suppliers or some savings to fall back on.

However making money isn’t simple even if the business is making profit.

It’s possible that I could be making profits and still not bringing in enough cash to pay all the bills when they are due.

Most obviously, if I buy stock for selling on in future I will likely need to pay my supplier for the stock before my customer has paid me, but if my customer hasn’t paid me how can I pay anyone else?

Accountants usually make some changes on paper to spread these sorts of costs over the year and match them to the sales that they relate to, but in cash terms my suppliers need the money more promptly to pass on to their suppliers.

What’s even more tricky is finding cash to invest in the business’ facilities. Buying a new delivery van has very little impact how much profit you make because only a small-ish part of the cost of the van relates to the sales in any given month, or year.

When it comes to paying for the van though, even with a hire purchase loan you’re going to need to pay a chunk of the cost as a deposit. That’s going to hit the bank balance.

So making money involves more than just selling for a profit. Cash may be king, but cashflow is complicated!

In my view the only way to tackle the cash challenges that every business faces is to plan ahead. Add to that a bit of action to make sure that:
– customers are paying,
– you’re not paying out for more stock than you need and
– you are making the best use of credit offered by suppliers
and you will be giving yourself the best chance to make money (and hold on to some of it) whatever stage your business is at.

Cash is kingThis is the first in a series of blogs looking at cash flow and ways to improve it, all filed under the “Cash is King” category.