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Businesses on the brink -
maintaining cash flow in a downturn
There is no doubt that the financial downturn is hitting UK businesses hard, with economic conditions clearly the worst of recent times. We know that for those who rely on funding from high street banks the challenge is even tougher, as banks, who are increasingly reluctant to lend, increase their charges for overdrafts and commercial loans, or withdraw facilities altogether.
In our experience, reduced lending has a knock on effect with many larger firms now taking even longer to pay smaller suppliers. Latest figures show that it takes on average 88 days for businesses to pay an invoice, with industry analysts predicting that this could rise to more than 100 days this year. We are now seeing businesses who have large amounts of stock tied up in their sales ledger facing a shortage of funds to pay for staff, overheads, creditors and stock. Worse, the reduction in cash liquidity means that businesses are struggling to service any short term debt. This pain is felt most by smaller enterprises operating on the tightest of margins, and it is these who as a result, are being forced to review their financial arrangements, and to consider alternative forms of funding.
We know that for many invoice finance is an increasingly attractive option because it allows companies, by assigning their unpaid invoices, to raise cash quickly and easily against their sales ledger - generating funding that increases in line with sales. For those who choose Close Invoice Finance there is the added benefit of knowing that we are backed by FTSE 250 specialist merchant bank the Close Brothers Group and that our award winning invoice discounting facility IDealTM, can release up to 15% higher cash availability than is typically available through conventional providers.
There are some simple steps our experts recommend every business take to ensure cash flow runs smoothly:
- Ensure your terms of trade are clearly and accurately reflected on all relevant documentation, in particular your invoices
- Make sure that your Terms and Conditions are present and agreed at the order stage and that all invoices are sent promptly, without delay
- Try and build up a rapport with your debtor from the outset and send regular and accurate statements of balances
- Do not invoice non-paying customers - if necessary use a specific tactic, i.e. ensure that monies received for outstanding debt is in excess of any new invoice being raised
- Exercise proper and professional methods of collection, such as chasing letters, customer contact (telephone/email), and a clear and precise procedure in the event of continued non-payment
- Ensure proper processes are in place in the event of non-payment. For example, a seven day threat of legal action followed by a legal letter sent via solicitors, stating legal action unless payment received
- Be sure to follow through threats of legal action or any other action, as failure to do so will significantly dilute the seriousness of the situation in the eyes of the debtor
- Be prepared to listen to the debtor and accept realistic payment plans/repayment schedules to clear old debt
- Ensure any payment plan/repayment schedule is properly documented within the confines of a written agreement and obtain exact payment dates and post dated cheques
- Advise the debtor (in writing) that in the event of one dishonoured payment, the entire balance will become immediately payable and due via legal action
If you would like to find out more about our cash flow and credit management expertise, please contact Close Invoice Finance on 0800 220 257.
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If you'd like to find out more about how Close's portfolio of invoice discounting and factoring services can support your business please visit www.closeinvoice.co.uk or call 0800 220 257 to discuss your requirements. |
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