Posted by 4 Colour Finance on 31st Aug 2018
With a business climate in which major firms such as Carillion or House of Fraser have been hitting the rocks, there is only one policy to adopt if you are a supplier: tight credit control.
However, to achieve that there are number of practices you need to adopt. So in no particular order here are 4 Colour Finance’s top ten tips which all accounts departments must take on board if they are to survive – even if you are one person business.
10 Put late payers on stop
So at number ten it is to stop supplying late payers. Carillion boasted on their website of paying some suppliers up to 120 days. When they went bust these were hardest hit as they lost four months of unpaid work. Enough to send a firm under – but if you cut off supplies at 30 days it will be less painful if the worst happens.
9 Be consistent
At nine is don’t make-it-up-as-you-go-along. Don’t hope for the best and never have a variation of credit control policies based on how well you get along with each client. If one sweet talks you into an extra payment period while another spins you a hard luck story – don’t be fooled. Treat all clients the same and chase them up on the date of payment. Later than the credit term and they are on hold.
8 Go digital
Old school invoicing, accounting and sorting out expenses may have once worked but if you remain wedded to letters, paper invoices and manually writing out receipts and mileage claims an awful lot of time will be spent chasing things up. Going digital using emails, digital filing systems and spread sheets will free up time which you can use to ensure customers pay on time and adhere to your credit terms.
7 Be organised
Working in a happy chaos may seem OK with its laid back attitude to paper work but invoices get lost and it’s not unknown for those invoices to go unpaid simply because of inefficiency. A tidy desk and a tide set of accounts will help your business to run smoothly.
6 Don’t give up on old debts
If a customer fails to pay and you give up chasing them for the money as you feel it’s not worth taking them to court or you know they’ve no money don’t stop the reminders. Things change and sometimes customers who are in financial trouble trade their way back to profit and find they can pay their bills – even years later.
5 Resist the bullies
Large firms can be arrogant and expect extended credit terms as they say they are doing you a favour by doing business with you as they are a big name. Rubbish. You should treat them as any other business and restrict them to your credit terms. If they refuse to play ball then stop trading with them.
4 Don’t be a workaholic
It is tempting to put in all the hours God sends when you are self-employed with the accounts left to be sorted out in the early hours or weekends. Doing your paperwork and invoicing shouldn’t be an afterthought as spending a minimal time on them will lead to mistakes and you could either miss an invoice or not have time to chase up payment. Get your sleep and ensure you treat credit control with the same amount of discipline as the rest of your work and give it the hours it needs.
3 Review your costs. Keep track of all of your small business expenses. These can add up quickly, but reviewing them from time to time allows you to fine-tune where your money goes. Question why you spend regular amounts on certain items – are fresh flowers in reception a necessity? Is a water cooler vital if the tap water is perfectly safe? Small costs soon add up so check them now and again.
2 Don’t wait too long before seeking a loan. An easy mistake to make is waiting until your business is in financial trouble before applying for loans or other credit. If you do you will be applying from a position of weakness and you may not get favourable terms. Instead apply when the going is good when the lender will see you are in sound financial health and see you as a good bet and offer lower interest rates and better terms. You don’t have to draw down the loan immediately in most cases.
1 Frugality and discipline
Keep your business and personal bank accounts separate and treat yourself as an employee paying yourself a minimum wage and account for all expenses. If you have to spend a night away in a hotel don’t go to a five star establishment but look to save money in a budget one and don’t splash out on expensive meals. Being frugal will pay off.
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