Cash flow is the lifeblood of business. Without money coming in, there’s no money to pay the bills you are running up for marketing, any staff or premises you’ve hired, keeping the lights on and the water running. It’s that basic, and that vital.
But when you provide a service or goods without being paid up front, you’re extending credit to your customers. Then, if you have to buy in raw materials, credit may be extended to you in another in the chain of transactions. Reputations can suffer and businesses even go under if bills are left unpaid along that chain.
So here are eight tips to avoid cash flow problems. They’re based on my long experience and suggestions from other businesses in the collections industry, and in the provision of solid business advice that’s far from the public perception of what debt collectors do.
- Ask SJ Collections for a credit report on a new customer. This credit vetting process can be as simple as finding out from publicly available sources whether they have taken out a mortgage, have ever had a county court judgment against them, or been made bankrupt or entered into an arrangement with creditors.
- Confirm who is responsible for authorising payment. Is the person you are dealing with authorised to enter into contractual arrangements for the company? Are they registered as a director?
- Fix a credit limit on each of your customers’ accounts and stick to it. Review the limits from time to time to reflect the amount of business you do with individual customers.
- Check your debtors’ list regularly. We suggest weekly. Watch it like a hawk for signs that the amount you are owed by any one customer is growing out of control. And don’t forget to look in the other direction, to make sure that you are not over-committed on purchasing.
- Always supply a copy of your terms and conditions when a customer asks for credit. Credit is a key part of doing business, but each party must understand the terms on which that credit is offered and what is and is not being supplied in any deal, and what their responsibilities are. Every business needs a set of terms and conditions that are fit for purpose, as we wrote recently here. Talk to SJ Collections about how to go about obtaining bespoke terms and conditions for your business.
- When a customer’s paying habit changes, discuss your options with SJ Collections. Don’t wait until the unpaid bills threaten to drive you out of business. Especially if you have only a few customers as a start-up, don’t allow any single client to run up a disproportionate amount of debt.
- Always seek advice from SJ Collections sooner, rather than later. I know, that’s almost the same as point 6. But it’s worth emphasising once again the importance of keeping on top of your unpaid accounts. And we can help you to do just that. Prevention is, as ever, better than cure. And cheaper too.
- Avoid litigation, if possible, even if it means offering a large discount. That may seem counter-intuitive, but if you can avoid the cost of going to law, you may maintain your cash flow while giving breathing space to a customer suffering their own temporary cash flow difficulties. SJ Collections can help you consider all the options available, and point you in the right direction if professional legal advice is needed.
Armed with those tips, I hope you’ll be able to see how proper attention to cash flow can maintain a health business and healthy business relationships. But should you run into problems, please don’t hesitate to get in touch with SJ Collections. The collections industry as a whole helps every year to free up millions of pounds that, as the song goes, oil the wheels of industry.