7 Sure Fire Methods To Avoid Overdue Accounts

The best way to avoid collection hassles is to take preventive measures up front to ensure that accounts don’t become overdue. Below are some steps you can take to improve your receivables turnaround.

1. Don’t grant credit

It’s not always possible or practical, but some companies can be run without offering credit. Require cash or bank drafts/money orders. Ship products C.O.D. (cash on delivery), especially to new customers who don’t have a payment history with you.
2. Accept major credit cards

Make it convenient for customers to do business with you by accepting debit and credit cards. While you will pay out a small percentage of each transaction for processing, you also will get paid within days. If you follow the regulations, you won’t be liable for fraudulent charges, although the customer will have the option to withhold payment if there is a dispute about a bill.
3. Require deposits

Both service and product businesses can ask for advance payments. Product firms can ask for 50 percent payment up front and the balance on delivery, or request a deposit amount based on standards for their industry. Service businesses might want to ask for 20 to 50 percent up front, depending on the project, with remaining payments due when certain milestones are met.
4. Offer terms

Terms outline how you expect to get paid, and what interest or penalties you charge for late payment. State these clearly on your contracts and invoices because you cannot request that these terms be met if customers do not know about them beforehand. It is common to ask for one to one and a half percent per month for late payments. While this won’t net you much money, it indicates that you are serious about timely payment. You also might want to offer a discount of one percent or more for early payment as a way of speeding cash flow.
5. Get a signed agreement

Never extend credit without getting something in writing. If there’s ever a collection problem, having a signed agreement makes your case much stronger. Use a purchase order or contract that details how much a client will owe and when it will be due. Take a moment to review payment deadlines with clients and express that you expect to be paid on time. Point out the terms for late payment. Always record changes or compromises in writing.
6. Check credit

Collect the information you’ll need to run a credit check on a credit application or “new customer form.” For consumers, this data includes address and phone numbers, whether homes are owned or rented, how long at last address, and bank account and credit/charge card account numbers. For businesses, you can ask for business name, company number, names of owners/principals, address, phone number and at least three credit references. You can get credit reports from major credit reporting agencies such as Experian and Equifax.
7. Create a billing/overdue notification system

You can’t collect if you don’t know how much is owed to you and when it is due. Set up a system that alerts you to overdue accounts – most accounting software programs do this automatically. Once you have a system, make sure someone in your company is responsible for keeping it up to date.

Get in touch and ask us to conduct a business evaluation and find out about our unique way of designing and implementing strategies to generate sustainable business improvement.

Improve Your Cashflow

In previous newsletters, we have talked about keeping track of jobs in your business, how to improve your cashflow and the importance of managing client expectations. Implementing these suggestions in your business should result in:

  • Clients who understand what you do, when you will deliver it and how much it will cost
  • Jobs that are carefully monitored from start to finish and
  • Prompt and regular invoices being sent to clients

But what do you do if a client still doesn’t pay your invoice? As you transform business you will naturally start to develop systems to monitor your key performance indicators. These monitoring systems will allow you to take snapshots of the performance of your business and help you with your planning and preventative maintenance. One system of monitoring will be checking on financial performance and will include regular review of your outstanding debtors. Unfortunately it is a fact of life that no matter how efficient or competent we are, we will have clients that are slow to pay us, or may not pay us at all. Clients will not pay an invoice for three main reasons:

  • The time effect
  • The cash impact
  • Conscious or subconscious avoidance

The time effect: The Time Effect refers to a delay between the job and your invoice. You can deal with the Time Effect by ensuring invoices are sent out when a job is completed or at the end of each month. Avoid sending out annual invoices because the lapse of time between the job being finished and the invoice arising diminishes the value of the job to the client.

The cash impact: The Cash Impact refers to how the invoice affects the client’s hip pocket. The Cash Impact is felt when the invoice is much higher than the client expected. The Cash Impact can be dealt with by ensuring their expectations are clear at the beginning of the job. On occasion, the client may simply be experiencing a cash squeeze. Time to pay may be appropriate but will depend on your collection policy.

Conscious or subconscious avoidance: Unfortunately, we can sometimes get clients who have no intention of paying. Usually these clients can be identified and rejected at the first meeting. Having a good engagement letter setting out your payment terms will help minimise bad debts but it will only be effective if you remain firm and follow your procedure. That means handing delinquent accounts to a debt collector for further action, including court orders for payment. Occasionally a client will just be forgetful and not remember to pay your invoice. Have a simple debtor management procedure, and regularly remind clients of overdue invoices. If you follow up outstanding invoices regularly, you will avoid the Time Effect and reduce the risk of bad and doubtful debts. It is important to remember that the job isn’t finished when you get the job lodged or back to the client – the job really only finishes when the invoice is paid! Ensure all your team is aware of the importance of following up outstanding invoices promptly.

Get in touch and ask us to conduct a business evaluation and find out about our unique way of designing and implementing strategies to generate sustainable business improvement.

Controlling Your Budget

If you decide not to have a budget system then you can expect that you will undoubtedly overspend or underspend, loose control and track of financial plans and obligations and lack up to date information that could explain variances between actual results and your budget.

To control your budgets you need to do as follows:

Understand Your Budget

Know where the financial figures came from, why they are what they are, which figures you are directly responsible for controlling and which figures are out of your control.

Communicate With Your Accounts Department

Ask them what reports they can print for you so you can accurately assess your budget. Always keep the communication lines open with the accounts department so they are able track, record and allocate your money as necessary.

Set Up A Monitoring System

Your monitoring system should allow you to keep track of your budget. A paper system can be used will tally all of your costs which can then be reviewed at the end of the month.

Set Monitoring Times

You will need to decide on a time in which you can monitor your budget. This will need to fit in with your other obligations, however it shouldn’t be left because you are too busy. Your budget monitoring should never be stopped or discarded. Make sure you have a weekly, monthly or quarterly appointment set aside. If you need to involve a team ensure that your members also make that day and time available.

Identify Any Variances

You will more than likely have positive and negative variances. A negative variance means you have spent more than what your budget has allowed and a positive means that you have spent less than what the budget specifies. From this you will be able to determine the effect on your future plans and if they need to be adjusted.

Don’t Assume

A positive variance in your budget may not be a good thing. Ensure you analyse exactly why the variance occurred and what effect it will have on your future plans or other activities indicated for the year. It may be possible that you aren’t carrying out the marketing as you advised, didn’t recruit a key team member, was there a once off payment required, etc. Don’t assume anything.

Communicate With The Right People

Communication is an important contribution to ensure the business flows in the desired conduct. Just as this plays an important role in the business as a whole it also plays a role in your budget. For instance, should you find a problem with your budget you need to communicate that to the people who need to know. If you don’t communicate it, others may not know it is there.

Corrective Action

Once you have determined and communicated the budget discrepancy then you must decide on what you are going to do about it. For instance you can leave it if it can be anticipated that the budget will fall back into line (ensure you explain and verify this), prepare a forecast determining where you expect to be in comparison to your budget or suggest a corrective action that will bring the figures back in line (i.e. generate more sales, cut back on costs, etc).

Consistent Monitoring

Keep your monitoring as an ongoing process. Remember don’t assume. Just because things are working well or you have over come one problem doesn’t mean that the opposite won’t happen.

Communicate Changes

If you have altered or amended your forecast you will need to advise the right people of this. Ensure you know who they are and why they need that information.

Get in touch and ask us to conduct a business evaluation and find out about our unique way of designing and implementing strategies to generate sustainable business improvement.

Is Your Business Financially Robust? Protect Your Business With Alternative Forms Of Cash Flow Finance! by Mark Redman of XL Finance

The on-going “euro crisis” has the potential to make borrowing money from the banks even more difficult. At a time when many businesses are struggling for working capital this could be more potential bad news for many businesses. The good news however, is that there are smaller and independent finance companies willing and able to provide alternative and viable funding solutions to the high street banks.

Invoice finance such as factoring and invoice discounting is one of the fastest growing forms of funding. Once often viewed a lend of last resort, factoring and invoice discounting is the preferred choice of finance for many SME businesses.  Invoice finance releases cash against unpaid invoices typically at 80-85% providing much needed working capital.  Unlike a bank overdraft which is often repayable on demand and is restricted by the level of available security, a factoring or invoice discounting facility will grow with your business and provide a long term working capital solution.

Whilst  high street banks provide such facilities it is widely recognised within the financial community that there are many independent alternatives and specialist invoice finance  companies providing a much higher level of service, expertise and flexibility.  It also makes good financial sense not to have all your eggs in one basket and have a separate invoice finance provider to your clearing bank.

Which funder is best for you will depend on the circumstances of your business. Whilst there are many factoring and invoice discounting companies many have slightly different areas of expertise and specialise in slightly different sectors and business types. Turnover, length of time in business, degree of profitability, size of your debtor book, contractual debt, export and import requirements, and geographic location are a few of the factors that need to be taken into consideration.

A good independent factoring broker will be able to narrow the choice of many down to 2 or 3 of the most appropriate providers.  XL Business Finance has been helping business for over 10 years and providing expert knowledge to ensure that the most suitable funding solution is found.

Examples include:

FACTORING – New start up Printing Company. We chose a small local funder so the customer was never more than one or two phone calls away from decision maker /director.  A highly level of customer service and hands approach ensured that debts were collected in a professional and timely manner enabling the owner to get on with running his business.

CONSTRUCTION FINANCE – Building Company.  This large national based  builder had previously been advised by his bankers that he wasn’t fundable due to a contractual element to his debtor book. A specialist finance company was able to arrange funding against staged invoices and contractual application for payments.

INVOICE DISCOUNTING / EXPORT DEBT – Engineering co. A 5.0m facility was provided via a large international finance organisation providing export funding as well as standard domestic invoice finance.

IMPORT FINANCE / FACTORING – Wine Importer. Against presold goods to a large UK chain of supermarkets an import facility was provided to the customer to import cases of wine. On delivery to the customer’s premises and on issuing an  invoice to the customer the factoring repaid the import facility providing a 100% funding solution from start to finish.

To read our blog please see  www.xlbusinessfinance.co.uk/invoicefinance.htm. Please see our website at www.xlbusinessfinance.co.uk. Or, contact me direct at mark@xlbusinessfinance.co.uk

The Power Of Margins

If there is one certainty in a growth business it is that it is going to consume all the cash you can get your hands on.

If all you had to do was fund work in progress, you just might be able to cope, but there are very large costs associated with growth which need to be funded well in advance of sales. Staff need to be recruited and trained, accommodation needs to be in place, inventory needs to be purchased and stored, computer software and hardware systems need to be implemented and so on. Infrastructure and support costs are lumpy and often need to be in place well before they are needed. Without access to a ready source of cash, growth businesses stall and lose their momentum.

The obvious solution is to have a source of finance available to meet the increasing demand for funding. But banks tend to shy away from high growth enterprises, as they typically don’t have the bricks and mortar to secure the debt. That leaves equity funding as the only practical external source of funds.

However, new equity dilutes existing shareholdings. If the business is privately held, then the funds will have to come from the private equity sector and the money will come with conditions.

The only practical path out of this trap is to generate higher levels of cash organically. You do this by increasing margins – reducing expenses or increasing prices. While this may seem a bit impractical, in fact, the high growth business is well positioned to do exactly that. While some progress may be made by reducing expenses, the major source of extra cash will need to come from increasing prices.

High growth businesses are in a unique position. They achieve high growth because they have a number of key product/market characteristics. Typically they satisfy a compelling need, have a sustainable competitive advantage and target a well defined niche market.

Generally, they work in emerging markets where demand exceeds supply. This unusual situation actually allows them to push up their prices as, at least at the margin, the market is not sensitive to small increments in price. A lift in prices increases their margins and generates additional free cash.

Apart from fuelling growth, higher margins allow the business to take greater risks, recover from mistakes and fight off competition. It is like having a war chest which you can use at your discretion to use in the best interest of the business. It could, for example, be used to increase the rate of R&D and thus improve your long-term competitive position or it could be used to undertake an acquisition to overcome a market or growth constraint.

We should never take our sales prices as a given. By changing product positioning, target customers, problems addressed and distribution channels, we can often find ways of increasing the price and therefore the margins. Any sustainable increase in margins will greatly improve the resilience, growth prospects and profitability of the business.