CASH FLOW TRULY KING IN YOUR BUSINESS? - ASK CHARLOTTE, TOP TIPS PART TWO
Remember this:
Revenue is vanity, profit is sanity but cash is king!
Businesses do not go bust because they have a poor product. Businesses go bust because they run out of cash, regardless of whether they are big or small. For SME’s cash flow is incredibly important to growth and so I would firstly like to share ten tips that could increase the cash in your business and then finish off by introducing you to Charlotte, one of our clients whose best practice credit control was essential in transforming the cash flow of a market leading business.
So here we go, our top ten tips for improving cash flow in the business. The first blog looked at:
1. KNOW YOUR MARGINS
2. GET PAID FIRST AND PAY SUPPLIERS AFTERWARDS
3. TARGET POOR PAYING CUSTOMERS
4. OFFER BULK DISCOUNTS FOR GOODS AND SERVICES
5. ALWAYS OBTAIN UP FRONT PART PAYMENT FOR SERVICES
A detailed explanation of those headings can be seen in the previous blog on the link below:
The second half follows:
6. GET PAID ELECTRONICALLY, NOT BY CHEQUES
It is amazing the amount of companies that use cheques to pay suppliers as a means of slowing up payment. If you have such a customer always encourage them to pay electronically rather than a cheque. The issue with cheques now is that they can take up to 6 days to clear in your bank and could be returned at any time in that period especially if there is insufficient funds in the senders account. Electronic payments are immediate if your bank is similar to your customers or up to 3 days if transmission between different banks.
7. UNDERSTAND AGED DEBTOR LISTS
This is a critical report that allows you to assess whether you are having credit control issues or not. The list details the clients that you have in the business and how long they are taking in paying your invoice. If your credit terms are 30 days net of invoice then the aged debtor report will identify those companies and the amounts that are outstanding. Your accountant or accountancy package will have this information.
8. MANY EXCUSES FOR NON-PAYMENT, IGNORE THEM ALL!
We have heard every type of excuses, from the ‘boss has gone on holiday’, through to, ‘I had to pay the dog fees first before I paid you’ – yes you heard it!!. The key with any discussion is to arrange an action plan that will allow you to get your money back. A weekly payment plan or withholding goods before the cheque is cleared are obvious examples. Be calm and professional in asking for your money. An angry exchange will only create a situation where the individual is likely to dig their heels in and let you continue to suffer in ‘mental pain’.
9. THREATEN TO TAKE THEM TO COURT!
This is the last resort and if this happens it is likely that you will lose the client relationship. In some cases this is no bad thing and more importantly your hard earned cash will be in your account, not somebody else’s. However, a simple ￡10-20 solicitor letter will normally do the trick. Nobody wants to have a CCJ on their books so it is likely this will resolve matters. If you have to go to court (after a process involving several letters, legal fees and statutory time to respond), then it is likely that the business is in a lot of problems and will likely go bust.
10. INJECT MONEY INTO THE BUSINESS
The obvious solution is to inject more money into the business. Getting a loan from a bank or injection of cash from savings, friends, private individuals or institutional investors are some of the obvious ways. We have discussed briefly my thoughts on factoring and clearly can be a benefit if the cash helps to fund a project in the short term. If it is used to provide ongoing end of the month cash flow issues then one needs to look a lot closely at the business model and adjust accordingly to ensure that trading provides the cash flow the business needs.
If you missed Charlotte’s story, here it is again for your review.
CASE STUDY
Charlotte was instrumental in the creation of a system that maximised the cash coming into a multimillion pound business. So much so that the aged debtor days were halved to 37 days within 6 months, creating hundreds of thousands of pounds cash flow addition to the business. She did this by implementing some key principles following a couple of sessions with our team:
- Getting to know her customers, ie; who pays the bills, about their lives and issues in the business? This is important because one will immediately get a good feel of whether the customer can be trusted with what they say based on your relationship with them
- As seen in the chart behind Charlotte in the photograph, she created a weekly print out of the aged debtor report on the company which included colour coding the clients and their aged debtor status.
- A weekly plan of following up late payers and creating documentation to outline the discussion with who, when and the appropriate action plan.
- Always requesting a time to call back rather than asking them to phone her back.
- Being calm, firm and professional in asking for an invoice to pay. Diffusing any potential conflicts.
- Using the senior team to talk to other contacts in the company so as to potentially influence a successful payment outcome.
- The key skills that Charlotte adopted in all situations were persistency and consistency. The product of a ‘never give up’ character.
Your business can also experience a massive a step change in cash flow and profitability through our support. Contact us at the office on 01622 741712 or through our website www.wsqsolutions.com.
Dr Wayne Wright is one of top three business advisors in the UK (IBC Awards) and a seasoned entrepreneur with business and charitable interests in the UK and the US. One of his companies, [W]sq solutions, has helped countless businesses experience double-digit growth leading them to receive 21 business awards in 5 years, with many of his clients going on to achieve multimillion pound exits. The company offers a FREE business growth session for potential customers wanting to experience breakthrough growth. Click here for more information