Tough trading conditions over the past year have left many business owners stretched financially particularly when you consider the average number of debtor days for a small business may now be well in excess of 50 days.

 

The shaky financial status of well known major corporations will also be exercising the minds of business owners caught up in the debt collection process. Through inability to collect payment in a timely fashion, proprietors can quickly become the bankers for their suppliers with their working capital being used to fund the suppliers’ business whilst draining their own.

 

Such situations highlight the need to exercise caution before entering into any agreements. Credit checks and references should both be “top of list” and the collection of a front-end deposit is also recommended.

 

What are some “Best Practice” approaches to Cash Flow Management?

 

There are many steps involved. Some are outlined in the paper entitled “Keeping the Cash Flowing” listed in the “Business Resources” section of this website.

 

Here are a few extra tips you may find useful:

 

·                Quote accurately for the project and ensure the client executes your account documentation before commencing the work or supplying products/services;

·                Look at ways of making it more financially rewarding for the client to do business with you;

·                Your documentation should set out credit policies including overdue account fees and finance changes  and the processes for enforcing payment and debt recovery policies;

·                Issue a monthly, or progress, invoice for work undertaken to date;

·                Send out regular statements detailing overdue invoices and follow up with friendly reminders;

·                Adopt a positive client relationship and a clear communication policy. Keep in touch with the customer during the job should changes be necessary;

·                Send the final invoice promptly upon completion of the work. Where possible hand it to the client and discuss any issues whilst they are top of mind;

·                Include a client survey with the invoice and make it easy for the client to return it. Posting an electronic version on your website is also a good policy;

 

As the economy begins to improve and with a fresh approach to winning new clients in the year ahead the temptation will be to focus heavily on pursuit of turnover. Experiences of the recent past reflect that such should be tempered with continued adoption of good cash flow management practices.