smallbusiness.co.uk: Helping your business think big

Keeping a steady head and sticking to basic principles allows you to maintain cash flow, improve debt recovery and retain margins.

SmallBusiness.co.uk has teamed up with Carole Spiller, associate solicitor in the commercial dispute resolution team at law firm Weightmans, to provide finance tips to help you come through the downturn stronger:

1. Be clear who you are contracting with - Limited Company / Partnership / Sole Trader? Often organisations have an official registered company name and trading name. Sometimes, there are several companies with similar names, for example X(1) Limited, X(2) Limited and X(3) Limited. Ensure you know who you are dealing with and be consistent in your paperwork.

2. Keep your paperwork in order including notes of conversations, purchase orders, delivery notes, invoices, receipts and correspondence. You may need to rely on these documents in future litigation - well kept, written evidence will be preferred.

3. Ensure your contracts are clear, concise and in writing. Oral contracts can cause problems. Even where relationships start off amicably, when difficulties arise both parties are likely to have different recollections as to the pertinent terms

4. Ensure that your Terms and Conditions accurately reflect how you do business. Have they been revised to reflect recent changes to your business (e.g. internet sales and online payment)?

5. Consider what safeguards could be included in your Terms and Conditions e.g. a retention of title clause to prevent title in goods passing to the purchaser before payment.

6. Ask new customers for trade references and verify them. Don’t just take them at face value. Put credit limits in place and monitor them regularly.

7. Put procedures in place to detect when accounts are unpaid and to trigger debt collection. Act quickly to recover your debts: you may not be the only one looking for payment.

8. Don’t throw good money after bad if a customer stops paying. Stop supplying until their account is brought up-to-date

9. Evaluate whether particular customer contracts remain valuable to your business. The old adage: “Turnover is vanity, profit is sanity” is never truer than in a slowing market. Is the contract still profitable? If not, concentrate on those contracts which offer better margins.

10. Talk to debtors early. Awkward, demanding letters usually find their way to the bottom of the pile. A phone call can elicit a more honest response. Even if it’s bad news, knowing that sooner enables you to plan ahead.

11. Consider factoring or invoice finance. If you already do this check to see whether you are getting the best deal. Consider whether you are becoming exposed under personal guarantees by continuing to supply financially vulnerable customers.

12. Don’t be afraid to establish a reputation for stringent credit control and debt recovery. If you have provided a service or supplied goods, you are entitled to be paid and should be prepared to use all the tools in your armoury (including, if needs be, your lawyer) to recover the sums due to you. Let’s face it: the contract is only worth it if you actually get paid.

Only those businesses that regularly re-evaluate their contracts, monitor and respond effectively to slow or non-payment and implement debt recovery, will be able to maintain their cash flow in tight financial times. Make sure you are not another credit crunch statistic - take control of the purse strings to ensure your business moves from strength to strength.

Carole Spiller can be contacted at Weightmans

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