Rob Moore on cash flow tips - Dronfield On-line March 2011

Cash is the lifeblood of any organisation and it is essential that you have effective procedures in place to manage credit and collect debts. Below I have outlined a few simple steps you can take to help your business run more smoothly.

• Credit-check your customers: If you supply goods or services to a new customer, satisfy yourself they are credit worthy – you will achieve better sales from a financially healthy client. There is a direct correlation between increased profit and reduced risk of aged or bad debt.
• Grade your customers: Are your customers good, average or bad payers? Extra care should be taken to ensure poor payers do not exceed agreed credit limits.
• Set up a new account properly: Put all relevant details on your system accurately, send your customer a credit application form and do not supply any goods or services until it has been signed and returned.
• Make your customer aware of your terms and conditions: It is essential that you have terms and conditions of sale to protect your business. It is equally essential to bring them to the attention of your customer before goods or services are supplied.
• Include a ‘retention of title’ clause: Under the Sale of Goods Act 1979, ownership of goods passes to the customer on delivery. However, a specific clause can be added to your terms and conditions that states ownership will only be transferred once payment is received.
• Obtain payments on account: When you take an order, request a payment of, say, 25% before work is undertaken or goods supplied.
• Consider factoring debts or invoice discounting: A factoring company or invoice discounter will pay you approximately 80% of the value of an invoice as soon as it is sent to the customer.
• Avoid payment by ordinary bank cheque: Whilst payment by cheque is still common, it takes at least three days to clear and if it is fraudulent, you may have to return the full amount. Ensure your business has the ability to accept payment by other means, including online banking.
• Stay close to your customers: If you have a good relationship with the person responsible for your invoices, you are likely to be paid more quickly and informed earlier if there are any problems.
• Speak to your customer when chasing payment: If your invoice remains unpaid after the agreed credit period expires, telephone your customer before writing to them.
• Send chasing letters: If a telephone call does not work, send no more than two letters. The first should be a polite request for immediate payment and the second should threaten court proceedings if the outstanding invoice is not settled.
• Use the law to your advantage: If you are supplying goods or services to a business, ensure you make effective use of the Late Payments of Commercial Debts (Interest) Act 1998.
• Let us take the strain: If all else fails, use Taylor&Emmet’s debt collection and credit management service.

If you would like more information about debt collection or credit management, contact Rob Moore at Taylor&Emmet LLP on (0114) 218 4000 or visit www.tayloremmet.co.uk.