smallbusiness.co.uk: Helping your business think big

As an owner-manager, seeing your cash flow steadily dwindle can seem like the equivalent of death by a thousand cuts.  If you are going to be on top of your cashflow, don’t make things harder than they already are by failing to pay attention to the numbers.

Effective credit control requires that you: 

– Credit check companies - Invoice promptly and accurately

– Confirm the invoice has been received with a phone call after it’s been sent to make sure the debtor confirms the invoice is correct (this prevents the debtor querying the invoice 30 days later, further delaying payment)

– Get proof of debt in the form of an order confirmation. This establishes the validity of the outstanding balance – If a debtor is consistently delaying payment, try to work out a payment plan by instalments (something is better than nothing)

– Extending credit is not a good idea, no matter how important the customer may seem. You’re not an interest-free overdraft facility for other companies

There’s nothing to stop you getting tougher too. So you might consider asking for payment or part-payment in advance, or tightening your terms and conditions. The opposite can be just as effective – offer a discount or some kind of incentive for prompt payment.

On an operational level, stand back and be clinical in deciding what adds to the bottom line and what doesn’t:

– Does marketing deliver with increased sales?

– Could one person do the job of two?

– Could you find cheaper office space (serviced offices, for instance)

– Do you monitor expenses closely? Are branding initiatives more about vanity than delivering leads?

– Which services are profitable and which are failing to deliver?

Basic stuff, you might say. Well, the advisers out there tasked with rescuing companies constantly see a failure to stick to the basics. ‘Every time I go into a company, I see the same mistakes being made,’ a turnaround specialist told me recently.

When it comes to needing an injection of capital, there is liquidity out there. Look at the asset-based lenders and consider invoice discounting – it can be an effective tool (for a cost) to outsource credit control and get money into the business.

But, as with anything, look at the terms and conditions and don’t use these services to stave of a relentless decline – invoice discount companies are essentially buying your debt and it doesn’t matter to them whether or not you fail as a business.