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I read with interest an article in the May edition of Credit Management – the journal of the Institute of Credit Management.
It said that new research conducted for Bibby Financial Services showed that “35% of businesses are finding customers are taking longer to pay than 12 months ago… with 47% of manufacturing and construction firms saying that customers are taking longer to pay…compared to 36% of firms in business services”.
In short then, a third of businesses are finding it takes longer to get paid than a year ago… a call for action if ever I heard one!
I’d urge all business owners/managers therefore to take action to protect your most valuable resource – your sales ledger! Please ensure you are doing the following – as a minimum…
1. Get the invoice right – and out the door! Invoicing your customers late, or with errors, will delay payment.
2. Make sure your systems for dealing with queries works as fast as possible – quicker query resolution means quicker payments (and happier customers).
3. Pick up the phone! Don’t wait a month (never mind longer!) after payment was due to call for the payment – the sooner you call, the sooner (in general) the payment will arrive. (Try looking at my earlier blog to see how to improve the effectiveness of your collections calls).
4. Get help if you need it – if payments are taking longer, and you can’t resolve it in-house – or you are unsure of the best way to resolve the problem – call someone in… consultants can achieve much, but the sooner they are involved the better…
1. Ignore the situation!
2. Do nothing!
Even if you only make one call (to a consultant) – make the call… there are people out there who CAN help, and they can help you maintain your cash flow through what is bound to be a difficult time for businesses!
Couple of things recently which made me think it worth blogging about when it comes to cheques…
First – if your bank balances don’t add up – have you looked at the value of cheques paid in over the last 6 working days? They don’t count towards your available balance…
Second – from above, cheques don’t clear for SIX working days from the date banked – please bear this in mind when it comes to cashflow projections, planning payments, and the like…
Client got caught out like this recently… cheque was banked before Easter (26th March), cheque did not clear until 7th APRIL…
BE aware of timeframes people!
Firstly, my thanks to those kind people who were most gracious about my first blog effort. I hope it has – or does – provide some help…
I also hope the next offering also provides some help, or just food for thought…or maybe further discussion!
One of my other projects reminded me of the following case study, which I’ll examine in more detail – here’s the case study…
“Supporting Customers in the Recession
One of my clients sent a big order for Christmas 2008, which took the credit limit with the customer to the limit. Now, this customer was supplying to pubs, and we know how they’ve been hurt in the recession…no surprises then when the customer couldn’t get paid by those pubs in January 2009. My client was left with two options at that point: 1) insist on terms, meaning their customer goes out of business; 2) go for an alternative…
As I suggested, my client agreed a payment plan for the customer, continue to supply, but on proforma terms, with a bit off the older invoices each time…months down the line, the plan continues to work, the balance on the older invoices continues to reduce, and the customer continues to trade.
So what has the client got from it? Months of trade – and so profit – they would not have had otherwise and…invaluable customer service and loyalty…what would that be worth in today’s climate?”
I wonder how many people who read that will ask this question first “Why did you continue to trade?” Well, there was a combination of factors at work here…
- The customer had been trading with my client for a lot of years.
- The customer had been through some ups and downs, but had developed a good reputation with my client. (Sometimes the payments were going to be late, but when it happened, the customer called and warned my client, and pre-warned, they could be more flexible).
- It was – to the client – not a critical amount.
- Based on the customer’s afore-said good reputation, I was more confident that they would honour the agreement.
Let’s look at it from a cash – money – point of view. To make it easy, let’s say the account was worth the following:
Value of orders - £5k per month – constant value
Profit margin – 10%
Current unpaid - £5k
So – in cash terms – the choices were:
1) Write off the £5k debt – and lose the profit on the whole previous year’s sales (plus a bit). As you know, Bad Debt comes straight off your bottom line, that is to say, net profit margin.
2) Trade with the customer – ensuring that the payment plan was stuck to. After a year this would mean the £5k from December 2008 was paid, but also that sales were made this year too – for simplicity’s sake let’s say that sales volumes remained constant with previous year’s…
So – by going with option 2 – you go from a net loss of £5k, to a net profit of £10k.
Next let’s consider cashflow…by agreeing the payment plan, the client began to receive money in from a source not expected when the situation arose…the customer was paying in, rather than saving up to pay the invoice in full…when it comes to cashflow “something is better than nothing”!
Lastly the customer loyalty – which is an immeasurable value – think what your customer’s loyalty is worth to you…then try to put an honest value on it…
Disclaimer! Just to be clear about this – I’m not for a moment suggesting everyone just start accepting part payments, or not asking for the full amount they are owed! There are two points I’d like you to think about from this…
First, to be truly effective, every system used needs to be flexible – including credit control…
Second, bring that same flexibility to your own decision making…consider the options /alternatives…