Managing your cashflow

They took on an investment partner and after a short time bought out their main web development supplier to provide the resources and give them strength in depth to take the project forward.
Over the past 3years they have gone from strength to strength expanding their client base and developing their product which is now used in most major airports throughout the world.  A heartening success story of a young entrepreneurial company seeing an opportunity and having the skills and energy to realise its potential.
Why did he want to see me? 🙂
But, and there’s always a but – although they had a great product and good sales – their business was being strangled by cash flow problems.
He said at times he felt as if he was funding his client’s growth rather than his own.  A sentiment that must be familiar to many of you.  We spent the next 10 minutes looking at his aged debtors and working out just what his slow payers were costing him and the impact it had on his cash flow.  Then we looked at what impact this had on his banking facility and the increase it had required to fund his debtors rather than his growth.
His tale is typical of many businesses where in terms of sales their business appears to be healthy and growing.  But that growth is sabotaged by slow paying customers both large and small.  
My next question was “what allowance do they include in their quotations for funding these slow payers when they pitch for business”  It was a rhetorical question as the answer as always was “ none – market pressures mean we have to quote competively and hope customers pay on time”.
I then asked the key question – “how much time do you and your accounts staff spend each month chasing these payments?” 
 “Well he said, Jill our office manager also does credit control and probably conservatively spends 2 or 3 days a month chasing money, but she doesn’t like doing it”.
“Yes – but what about you” – he grimaced and I knew I had hit a raw nerve “well I must admit there are a number of clients whom she has problems talking to and if I am honest I spend at least a day a month chasing these”.
“So how much do you think that costs your business?” – he is charged out at a £1,000 a day.  “I have never considered what it costs and I just hate doing it”.
“So how do your clients feel about you chasing them for money and does it affect your business relationship?” – “They are often irritated by me asking them to chase their accounts department and it often makes it difficult to discuss projects when I’m chasing money”.
This scenario is common from 1 person businesses to larger SME’s. Building a successful business is not just about producing products and services that appeal to your customers.  You need to have processes in place that ensure you get paid and not to end funding your customer’s growth rather than your own!
Some of the things I recommend to clients: 
  1. Ensure your terms and conditions are up to date and that they include payment terms and any interest that you can apply for late payment. 
  2. Quote payment terms on all quotations and tenders and state that the quotation is subject to your terms and conditions which if possible should be printed on reverse.
  3. Get the name of the person responsible for raising payment at your customers.
  4. When you contact a customer for payment, note what is said and be specific about agreeing future actions and if appropriate confirm them by email
  5. If they promise payment ensure your diary forward to call them day after payment is due if it doesn’t arrive
  6. Never let chasing slide – be relentless
  7. The more you let payment slide the more your customers will think your prepared to extend their credit
  8. Think long and hard before you resort to factoring
  9. If you don’t like chasing money and your time is more profitably spent running your business why not consider outsourcing to the specialists who will retain your customer goodwill and get you paid.