KNOW YOUR CUSTOMER
Unless you know exactly who you’re trading with, you won’t be able to check if they are good for the amount of credit you need to grant, and you won’t be able to commence legal action effectively if it becomes necessary.
If payment fails to arrive for goods or services you have provided, your cash flow can be under real pressure. Cash flow keeps business in business and – if you think you are being paid on one date and your customer has a different date in mind – you could be in trouble! Making assumptions is dangerous and formally agreeing payment terms in advance is vital. Download our guideline.
If you don’t raise an invoice, you won’t get paid. Invoicing should not be seen as a back-office administrative nuisance. Rather, it is a vital first-step in achieving healthy cash flow.
TREATING SUPPLIERS FAIRLY?
Cash flow keeps business in business and if you don’t pay your suppliers on time you risk damaging their business or – worse – causing, or contributing to, their failure. You want your invoices paid on time, and you should do the same. It’s not just good business practice and ethical behaviour; it’s also a demonstration of corporate social responsibility.
The fact that a business is here today is creditworthy does not mean that it will be tomorrow, next week or next year – or in fact that it will still be in business. If a customer becomes insolvent and cannot pay money that is due to your business it can be catastrophic, especially if the amount involved is large.
INVOICE BASED FINANCE
Most businesses extend credit to their customers and extending credit requires finance. Unless a business has the cash flow to support the difference in timing between the cash it collects and the cash it has to pay out, it can be in trouble. Managing cash flow effectively means staying on top of finance and ensuring funds are available when they are needed.
When you get paid, the sale is complete. When a customer doesn’t pay, they’re hanging on to money that is rightfully yours and you should ask for it. Use Veri-Credit Payment Prompt Chaser for following up non-payment and be prepared to act more quickly if the amount is large or you are concerned about the customer.
WHEN CASH RUNS SHORT
Cash keeps business in business. However healthy the order book and profit margin, if a business runs out of cash it won’t be able to pay its suppliers, its wages, or its overheads, and it will fail.
WHEN ALL ELSE FAILS
Sometimes, you just can’t get paid. You’ve done all the right things and the money has still not arrived. The longer the debt remains unpaid, the more likely it is to turn into a bad debt and bad debts damage your business. Legal action is always an option but there are others you should also consider.
WHEN YOUR CUSTOMER GOES BUST
Inevitably, businesses fail and – when one of your customers goes bust – it hurts. There is little you can do except wait to hear the outcome. The general outcome is that the debtor’s assets are divided amongst its creditors and the insolvent debtor is released from the burden of its debts. Once most formal insolvency processes are underway, you cannot start or continue any action to recover your debt.
INVESTING IN EQUIPMENT
Buying new business equipment can require a great deal of cash. In some sectors, such as agriculture or manufacturing, the cost of new equipment can be more than the business’s annual turnover. Equipment finance, such as leasing or hire-purchase, helps many businesses invest without the need for a big up-front cash investment. It also helps businesses who manufacture and distribute equipment to increase sales by helping their customers to invest when cash is tight.