Cash Flow
& Business Debt

1. Business Debt

The check's in the post!

I cringe when I hear that. I've used the excuse myself, then put the phone down and gone scurrying around trying to make sure I'd told the truth!

Late payers are the bane of all small businesses. Often we cannot get extended credit ourselves, but our customers assume it.

I even knew one company which always waited till a red letter threatening legal action came before paying. They were very efficient at screwing the last drop of blood from their suppliers.

ACTION
However, some simple ways of dealing with these people can work wonders.

a) When accepting the order, make sure that the customer is clear about the terms - ideally face to face, so you can seethe response, if not, by phone.

b) Get your paperwork right. Make sure your terms are clear, and on the front of the invoice, not lost in the Terms & Conditions on the back.

c) Phone in advance of the invoice, then phone a few days before it is due - I have seen a colleague reduce late payments by 70% by friendly chats on the phone with customers' purchasing clerks

d) If, in spite of your best efforts, payment is not forthcoming, write a formal letter informing of legal action within, say, 7 days, if payment is not received. - be prepared to go to court - the bush telegraph will go round the business community that you are not a soft touch.


2. Cash Flow

So many companies get into trouble with their finances even when things are going well.

I'd go further than that - they are more likely to get into trouble when their business is expanding.

Here's why.

Let's assume you have the capital, or an overdraft facility with your bank, to cover the normal costs and delays in getting paid for your product or service. All is OK, and you can work within that.

    Then you get that big order.

    You have to buy more materials

    Pay more overtime

    Pay contractors more

    Then you wait to get paid.....

    But now you have a larger amount to wait for

    - you bust your overdraft,

    - your bank closes you down and you're bust!!



To avoid is simple - plan ahead; build contingencies.

If your increased business is completely out of the blue, see your bank straight away - they are more understanding if they know in advance.

Alternatively, and this is the best and cheapest way
- negotiate part advance payment from your new customer - after all, it's no good to him if you go bust before delivering his goods.

It also helps put you in front of him more, with the chance of repeat business.



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This page was updated by Paul Hogwood, 7th April 2005

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