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Prevention is Better than Cure when it Comes to Business Debts

Maintaining a steady cash flow is an essential element of success for small businesses here in the UK.  This means making sure that you pay your creditors in a timely fashion and that you also receive payment from your customers or clients, whether these are repeat customers to whom you supply goods or services on a regular, on-going basis or whether they are customers who purchase your products or services just once or twice. 

As a business owner, you’re in control of the payments you make to your suppliers but when it comes to your customers, payment is out of your hands entirely!  This is why it pays to take a pro-active approach to manage your debtors and avoid a cash flow crisis.  Here are some tips that you can follow to keep your business finances on a more even keel:

  • Get to know your customer – perform a credit check on them to ensure that they’re able to pay their bills.  This especially applies to larger, B2B customers because if they face insolvency you may risk losing two or three months’ sales payments together with any investment in stock for work in progress.  Paying £20 or so for a credit check is small change compared with the amount you stand to lose.  It’s also recommended that you check to see if the customer is a signatory to the Prompt Payment Code, a government backed code encouraging businesses to commit to pay within 60 days.
  • Agree payment terms before starting the contract – if a business customer insists that they payment terms are 60 or 90 days you need to decide whether or not to take the work and, if you do, find a way to manage the workflow until the regular payments begin.  This may involve running a cash flow forecast to measure the impact this additional business will have on your current cash flow.
  • Invoice accurately and promptly – making sure you know to whom and where to send invoices and the details they should contain.  Raise invoices as soon as work is completed instead of waiting until the end of each month.
  • Adopt a system for chasing customer payments – call the person or department responsible for payment shortly after sending the invoice and make a note of the conversation.   Monitor payment performance and get in touch immediately if a payment is late.
  • Escalate a complaint if payment is not received – making sure that you have a person specifically responsible for doing this and that they have the contact details of the appropriate person within the customer’s management team to talk to. 
  • Agree with the customer on how the invoices should be delivered.  Many customers will prefer electronic invoices so make sure you choose a system that’s compatible with your customer’s system.

Ensuring a steady cash flow is essential for any business so taking the time to get to know customers and agree on payment terms is a vital part of business management.  No business should be put at risk due to late payments from other businesses.  Next week we’ll be taking a closer look at the Prompt Payment Code and how you can leverage its power to help maintain a steady cash flow for your business.  Make sure you don’t miss out on the useful information by following us on Facebook or Twitter.