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Are you in control of your credit?

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Thursday October 25, 2012 at 2:28pm
Owners of small businesses are feeling the pinch as operating costs continue to rise, according to a survey last week from the Forum of Private Business.

Out of the Forum members questioned, 95 per cent said their overall business costs had increased, with the main areas of concern being the costs of energy, transport, marketing and raw materials/stock.

And in a challenging economic climate it’s proving difficult to pass those costs on to customers or get financial help from banks to help bridge the gap.

As ever, the key to survival is maintaining your operating cash flow, so control costs, spend wisely and get the best deals from your suppliers. Above all make sure your creditors pay you promptly.

Negotiating payment terms that support your cash flow is getting tougher. Your creditors are after all in the same boat and want to hang on to their cash too for as long as they can. I see last week that Sainsbury’s has been criticised after extending the time it takes to pay its non-food suppliers from 30 days to 75 in some cases.

It is certainly difficult for small supply companies to take on a big customer. That said, I often see missed opportunities where business owners aren’t as vigilant as they could be when it comes to credit control. In the current economic climate, now more than ever SMEs needs to get their credit control working for them.

Are they a safe payment bet? You can see a potential customer’s poor track record through a credit checking agency – if they look risky then insist on full or part payment up front or, if feasible, cash on delivery.

Be cautious. Avoid exposing your business to a potentially large bad debt. If a customer is new you might want to set a lower level of credit with a view to increasing it once their payment track record is proven.

Set clear payment terms. Ensure that your terms of business clearly state that invoices are payable immediately. As a courtesy you can offer 30 days credit but there is no need for you to set that in stone in your terms of business.

Make it easy to pay. Where you can, avoid payment hurdles and undue delays. This could be as simple as including a purchase order reference on your invoice or asking customers to pay direct to your bank instead of by cheque. Direct debits are easy to set up or your customer can transfer money directly into your bank which means ensuring your bank sort code and bank account details are on each invoice.

Seeking advice from your accountants on improving credit control procedures can be the boost your cash flow needs.

Andy Parker
Chartered Accountant, Birmingham

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Parker Chartered Accountants and Financial Advisors is the trading name for PLW Advisors Ltd (Registered No. 10396831), and Parker Financial Planning LLP (Registered No. OC347027). Parker Financial Planning LLP is authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales – registered office contact details here