You may feel that you’re billing enough each month to be satisfied that your business is well and truly solvent. However, a project is not completed or a product sold until you have that customer’s money in your bank account.
Unpaid customer invoices are proving to be a huge headache, more now than ever, for UK SMEs. A staggering cashflow often means you are unable to pay your own debts as they fall due, incurring more fees. It’s a vicious circle.
There are ways, however, to maximise your cashflow and ensure that it runs as smoothly as possible, without impacting on your business processes:
1. Ensure you invoice the client as soon as the work is completed.
If necessary, particularly when working on a longer project or contract, bill intermittently or ask for a deposit up front.
2. All outstanding invoices need to be chased as soon as possible
Write to the customer approximately a week before the terms of the credit agreement are ending and telephone them the day before. This may seem aggressive but will convey to the customer that your processes and procedures are in place and you will chase any outstanding payment. If invoices are now classed as unpaid, a failure to communicate on your part will simply mean you will be waiting a considerable length of time until you finally recover your money.
3. Ensure that you don’t have excessive stock
A stock reduction programme will release funds and ensure that you’re making your cashflow work harder for you. Order additional stock only when you know it is definitely going to be required – don’t let your money gather dust in a warehouse.
4. Try negotiating credit limits and payment terms
On the other side of the coin, try liaising with your own suppliers to raise credit limits and extend payment terms. They are facing the same problems as you and if you are offering to pay their invoices, just requesting more flexible terms, it makes more sense for them to agree to your terms rather than spend time and money chasing your payment.
5. Speak to your bank
Your bank may agree to extend the term of your overdraft or business loan. However, maintain a good relationship with your bank manager or you may find facilities being withdrawn at short notice.
6. Factoring and invoice discounting
For a small fee, specialist factoring and invoice discounting companies not only offer to release up to 90% of the value of your customer invoices, often on the day you issue them, they may also agree to take on your credit control function, chasing customer payments and allowing you to get on with the running of your business. Customers often suddenly manage to find lost invoices and cheque signatories when contacted by a debt collector rather than a small business owner.
7. Sell off your least-used assets
You need to do your sums carefully on this one to ensure you’d obtain a profit by selling individual assets, but you can put them to best use, raising cash and even leasing them back if necessary.
Touch Financial is the UK’s leading independent online commercial finance broker. If you are having difficulties with an intermittent cashflow, have a turnover of at least £50,000 per annum and issue credit terms of between 30-90 days, give us a call on 0845 388 9725 or visit our website to instantly compare quotes from the UK’s leading lenders. Your call will be dealt with in the strictest confidence and our advice is impartial. Initial business finance consultations are free.
