In these difficult times, it is extremely important that cashflow is controlled as it could be the difference between success and failure. Making profits is one part but a sale is not a sale until the cash is in the bank. Monitoring and forecasting cashflow will be seen as a strong management tool by the lenders to your business.
Consider these tips to keep your business on track.
Look at your business plan and update it on a regular basis. Use scenarios to see what will happen if sales increased/dropped by say 10%, what is the knock on effect with costs? This information will help to project future cashflows and assist in management decisions.
Cut costs where possible, but not at the cost of future sales. Are there any surplus assets/stock that could be sold?
For larger contracts consider interim invoicing so the whole invoice is not delayed because one small part can not be agreed. Is it possible to have instalment payments as the work progresses?
Enforce your credit control.
For new and existing customers inform them of your credit terms as this may lead to bad cash flow if not done. Always make sure you know the contact person who is responsible for raising payments, and if different, the person who sends the payment. Always remember "a sale is not a sale until the money is in the bank"
Always obtain credit references, this is best done by speaking to the customers existing suppliers. Outside credit agencies can also be used, remember spending a little now can save a lot in the future.
Speak to your customers on a regular basis, many businesses operate a "he who shouts loudest" basis when dealing with payments. Sending statements, whilst a good thing, will not always prompt payment. If a payment is agreed at a certain time then telephone on the day to confirm the payment is to be sent.
If payment is still not forthcoming then take legal action as per your credit terms. Normally a "letter of intention" is enough to show you will not be fobbed off any more. Your customer will then appreciate that you are a professional firm. Remember you have nothing to lose as further work will also result in non payment. This should make sure that your customer will be more forthcoming with future payments. We can put you in touch with debt collectors who do not charge if no funds are collected. However, make sure the customer has funds to pay or otherwise you will be wasting your time.