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Managing Cash Flow

New customers are brilliant for your business – unless they fail to pay you. If you don’t check that your client can pay you the amount of credit you are giving them then legal action can be a long and expensive process.

This puts your cash flow under pressure, and you in turn may not be able to pay your suppliers. This is bad business practise and is often regarded as corporate social irresponsibility.

Factors to consider

Get to know your customer before you issue them any credit. As a minimum you should know:

  • The exact name of the customer and their trading address
  • Their type of business structure (sole trader, partnership, company)
  • Names and personal addresses of the proprietors’ if their structure is unincorporated
  • Contact other suppliers to obtain references
  • Their credit rating

Before Providing the Goods or services make sure you have looked at:

  • Discuss and agree payment terms with the customer before accepting the order
  • Agree the terms in writing
  • Review any written documents where the customer has tried to change the payment terms
  • Produce a cash flow forecast covering expected income and expenditure
  • Put a policy in place which means payment terms cannot be changed without your authorisation
  • Make sure you can apply late payment charges and interest if the invoice is not paid on time

After you have provided your goods / services make sure you:

  • Raise your invoice straight away and accurately
  • Include a reference number for the customer to process it quickly
  • Have a process for chasing invoices
  • Create a process for dealing with disputes
  • Ensure your invoices are fully compliant with HMRC for VAT purposes

Consider your suppliers – treat as you wish to be treated!

  • Not paying your suppliers on time could result in a bad business credit rating, always let your suppliers know of any disputes as soon as they happen
  • Consider obtaining credit insurance where the business would not be able to function if key customers went insolvent.

An example of a monthly cash flow plan is here:

1st         Rent, storage and utility direct debits collected from client accounts

7th        Eviction notices raised giving a further 5 working days for unpaid rent and overdue storage letters raised

14th       Eviction notices expire, 2nd letter issued for unpaid storage

15th       Telecom direct debits will be collected, any failed rent DD’s will be automatically represented

20th       Disconnection notices issued, automatic disconnection for any accounts with rent outstanding

25th       Telecoms disconnection notices expire, disconnections carried out

           All unpaid accounts are passed to bailiffs for collection or lock outs instructed