Ask any small business owner about cashflow and most will tell you that late payments are a major cause of headaches and sleepless nights.
As a financier of startups and SMEs, our FactorONE team is dealing on a daily basis with entrepreneurs looking to make the most of their working capital and improve cashflow.
Slow payments not only impact on a business’ ability to pay suppliers on time, they also reduce your ability to grow.
There are five steps businesses can take to smooth payments and boost cashflow – the first one requires time and research, the other four are fairly simple but can reap major benefits.
Tips to help SMEs with cashflow
1. Get the invoice details right. When raising invoices, be methodical and time-sensitive. We recommend clients don’t wait until month’s end, but issue invoices as soon as the job is done or goods are despatched. Take the time to make sure your invoices are easy to pay, including all relevant details such as customer order reference, date payment is due, bank details, who to contact if there is a query and a full description of the goods or services provided, including rates, unit prices and number of units purchased.
2. Ensure you credit check potential and existing customers. There's no profit in a sale unless you get paid (and paid on time) and the best way to ensure this happens is to run regular credit checks - at least every few months.
3. Separate sales from debt collection. Make sure those responsible for any sales are not responsible for collecting payment. Have two distinct roles within your organisation where responsibilities are clear.
4. Don’t just send an invoice and hope for the best – send reminders and make follow up calls when an invoice is falling due and when it is overdue. It also pays dividends to work on relationship building with your clientele so they are more likely to tell you if they are having an issue and a payment plan could be worked out, rather than them just ignoring your calls.
5. The first four tips are relatively quick fixes. The last tip, if SMEs take the time to investigate, can have the biggest impact on cashflow. Owners should take a good, hard look at the big picture. Are you financing the business in the most effective way? Invoice finance can be a worthwhile solution, with facility limits based on accounts receivable balances. This means the amount of cash available grows in line with sales, providing ongoing access to the funds required to complete the next order, without having to wait 30 days or more for customers’ payments. Most factoring facilities do not require real estate security so there is no need to use the family home to secure the borrowing facilities required to run the business effectively.
