Category Archives: Cash is King

Lucky Escape?

Just before Christmas a consulting firm that I had previously delivered some training for went bust. This was totally unexpected: the firm seemed to be doing well and had lots of new projects planned for 2020, but it was part of a bigger group and it appears that all was not well elsewhere in the group.

Obviously this was a tragic development for the staff who lost their jobs a couple of weeks before Christmas. In conversation with my contact just after the news she told me that she was impressed that I had insisted on invoice being paid promptly and therefore escaped being caught up in the insolvency.

I didn’t think too much of it at the time – the training was delivered in October and we had agreed that payment would be made during November – but her comments got me thinking.

Managing credit is always a challenge. In reality terms are often dictated by the customer and if you want to retain the contract you have to comply.

Once the product or service has been delivered it is difficult to apply pressure if payment is not forthcoming, even if you have included wording in your contract which states that goods have to be paid for before ownership transfers. Many businesses that I have encountered don’t even create a contract before they start supplying.

I am not bragging here about having escaped a bad debt; I firmly believe that this is more about luck, but in reality the only way to reduce your risk of not being paid is to be prepared.

Start out as you mean to proceed
Have a contract or at least terms of sale which outlines all of the responsibilities of both parties: it doesn’t need to be seriously legal: you could use an industry standard template but depending on what’s at stake it may make sense to speak to a solicitor.

This will cover the basics of what you’ll deliver and when, how much you’ll be paid and when, but also you might like to think about the worst cases of what could go wrong and what you’d be liable for if that happened. Are you planning to charge interest if you are not paid on time? What should happen if either party wants out of the contract – notice periods? reasonable compensation?

By setting out these points in advance (and highlighting them to the customer) you set the right expectations for your trading relationship, and you protect yourself against future issues, however unlikely they seem now. Crucially in the case above, my terms actually required payment at the end of October – so I was able to enquire about payment promptly and refer to the contract that the customer had committed to.

Unfortunately, having a contract alone doesn’t ensure that customers will pay on time. So what can you do to give yourself the best chance of being paid?

Make a conscious decision to give credit
Do you want to give your customer time to pay you? Wouldn’t the money be better in your bank? It may be common practice to offer credit, but that doesn’t mean that you need to offer every customer unlimited credit, for an unlimited period.

It is worth doing some research to ensure that the customer is who they say they are (identity theft is not just confined to individuals) and that they have a trading record that supports your faith in giving them goods without payment. At this point (when they want to buy from you, but haven’t got the goods yet) you have more power to ask them for accounts and supplier references “just for admin purposes”, so create a credit application process and follow it!

Follow up references and look for credit checks. This is not fool proof, it’s all historical information, but it can provide useful background and potential negotiating information.

Setting credit limits can be a useful tool in ongoing trading relationships – if you enforce them. Regardless of what payment terms have been agreed if you have decided that £5,000 is the maximum limit of credit that the customer can have, then you should not allow them to have more than that.

More importantly than anything else never give more credit than your comfortable with to a potential customer purely because they represent a “high profile” or “prestigious” opportunity. They may present marketing capital but what you need is money in the bank!

Keep good records
To keep on top of customer credit you need to have up to date information – how much has been sold, when payment is expected and the current outstanding debt. If you can’t trust the figures you have you will never be able to chase up payments with confidence and you may well miss warning signs.

As well as giving you information to use to control the risk of not being paid on time, up to date records also allow you to automatically send statements and payment reminders promptly – a simple and easy way of ensuring customers know how much is outstanding on their account.

Establish a relationship
In my experience the best way to ensure invoices are paid on time is to build good relationships with whoever pays the bill at the customer end. Whether this is the customer themselves or a member of their team, being friendly and helpful pays off.

For example, if you’ve given a new customer 30 days to pay why not call up a little while after the first invoice has been sent to introduce yourself?

Check up that you have the correct address details and that they have your bank details. You could try to find out more about how their system works: when should you expect to receive payment? How often do they make payments? (one of my clients pays everything on the 10th – chasing ahead of that is a waste of time)

This will help you feel more confident and if there is an issue it will be easier to find out about it and correct it.

Sometimes things will go wrong and there are not always warning signs, but if you have set up an easy to follow system that keeps you updated you can reduce the chances of being left with a bad debt and my favourite tool for improving cashflow. If you would like to enhance or review how you handle customer credit then drop me a line.

You don’t get anything for nothing

At the Food For Thought workshop in February we were lucky enough to have a presentation from Janet Herniman looking at both what grant funding is currently available and also sharing some of her top tips for making funding bids successful.

BREXIT has undoubtedly introduced uncertainty in the grant funding landscape, but the government is expected to continue supporting investment in our business performance one way or another both before and after March 2019; small businesses are an essential part of the UK economy.

Janet is in a rare position as she works closely with several of the grant awarding authorities in Devon and is in an excellent position to give us the most up to date information about what is available in which area.

Also, this experience gives her detailed knowledge of building a strong funding application; the difference between a fantastic application and one that is not successful.

Whilst some funding opportunities have recently closed to new applications there are still funding streams open and many other businesses are still working on full application preparation.

Janet has four points to consider when writing an application:

1. Need for the money
Grants are available to support investment that would otherwise not take place. You will need to show that the grant money is needed to enable the project to go ahead.

2. Market need and demand
Information on market size, trends, who your target customers are, evidence that you can acquire the extra customers forecasted and that your project will not impact on competitor businesses is an important part of your application.

3. Quantify
When it comes to explaining why the plan you have should be backed by grant funding you’ve got to have more than vague ideas for what the benefit will be. Grant assessors want to see specific proof in terms of: Finance for Food & Drink Businesses Workshop
– what new sales you can generate?
– who will buy your new product or service?
– how much more profit will you make?
– how many jobs will you create as a result?
– what about benefits for your suppliers and other local businesses?
– how do you know all this?

4. Evidence
As well as explaining clearly what your project is, the benefits it will bring to your business and importantly how your project fits into the programme funding priorities you will need to back up your statements with evidence.

Evidence can be supplied in a number of ways such as quantifying specific outputs, sharing your own or independent market research and getting letters of support from suppliers and customers.

In rounding up, Janet stressed that while a successful application can take a lot of work and preparation, the benefits are worth it financially and many applicants say it makes their business stronger as a result.