smallbusiness.co.uk: Helping your business think big

Just as the recession started to bite in late 2008, Julian Phillips, managing director of videoconferencing provider Impact, noticed that customers weren’t as forthcoming in paying outstanding balances as they had previously been.

‘It wasn’t necessarily people saying “the cheque’s in the post”; they were categorically stating that they were moving from 30 days payment to 60 or 90 days,’ he says. ‘If a big player starts paying on 90-day terms, everyone in the supply chain has to pass it down effectively to stay in business.’

Consequently, Impact was pressured by its own suppliers as they demanded quicker payment. Impact brought in invoice discounting to address the problem, submitting 85 per cent of its invoice book and getting the cash the same day. This has created a much healthier cash flow position for the business to pay its own suppliers sooner and benefit from early settlement discounts. ‘It was the best decision we ever made,’ says Phillips.

Some companies have more immediate ways of nipping tardy payment in the bud. Telecoms company Gradwell simply cuts off late-paying businesses from its phone services. ‘That usually gets them to pay pretty quickly,’ says managing director Peter Gradwell. When offenders switch supplier, though, charges can be left behind, and suddenly there is less power to wield in chasing bills. In this instance, Gradwell has used a “winding-up order”, bringing in the courts to exert pressure on debtors to meet final payment deadlines.

Edward Winterton, executive director of invoice discounter Bibby Financial Services, says, ‘You can have the best product and the best marketing, but if you don’t have the cash flow to sustain a business it will fail. Plan your cash flow and strategy with your debtors carefully and have a plan in place to ensure that late payment doesn’t hamstring the future success of your company.’

Top 5 Cash Flow Tips

1. Be tough with debtors, and don’t accept excuses.
2. Examine invoice discounting to combat tardy debtors and keep money in the system.
3. Claim interest on late payments.
4. Demand compensation for invoices not paid within the credit period.
5. Use winding-up orders to exert more pressure on debtors to meet payment deadlines.