YOUR BUSINESS SUMMER 2018 - 85

Debt recovery

is seasonal. You can be pretty certain
that if you sell ice cream, summer will
be more profitable than winter. Some
problems can't be anticipated. But
you can factor these in your plan, so
you're covered when disaster strikes.
But it isn't only other people who
cause cashflow issues. Small businesses
can be their own worst enemies. A
2013 survey found that one in five
SMEs had forgotten to invoice for
goods and services at least once, with
a significant number of these being
for jobs worth more than £10,000.
It's been estimated that this means
the UK's SMEs could be collectively
out of pocket by as much as £3.7bn.
Late and incomplete invoices are
another common issue. It's good
practice to send the invoice as soon
as you've delivered the goods, making
sure it contains all the necessary
information, especially details of how
to pay! Make sure you send it to the
right person too. If the person who
pays the bills is based at a branch and
you send the invoice to head office, it
can seriously delay payment. A quick
call could keep your business afloat.

"Cashflow
forecasting
is essential
to cover any
shortfalls"

WORDS DAVID CROZIER SOURCES GOV.UK,
FEDERATION OF SMAL BUSINESSES, XERO

Mind the gap

Reducing the delay between paying
suppliers and receiving payment
from clients is challenging for all
businesses, but especially those that
have only recently launched. "New
businesses typically don't have the
time, resources or expertise to dedicate
to credit control, so it's important to
get the basics right," says Hilton-Baird.
"Have robust terms and conditions
of sale in place, and perform credit
checks on new customers to ensure
they're creditworthy." It may also
make sound business sense to offer
a discount for early payment.
Another way to help avoid cashflow
problems is through invoice finance.
This is when lenders advance up to
90% of the invoice value straight
away - usually within 24 hours of the
goods and services being delivered
and billed. When the customer
pays, you get the remaining 10%,
minus the finance company's fee.

Factoring - when the company
also collects the payments on your
behalf - is another option. "Factoring
can include a dedicated sales ledger
management service and even debtor
protection, which will provide credit
control experience while safeguarding
the business's cashflow against
non-payment," says Hilton-Baird.

Prompt action

But what should you do if, despite
all your best efforts, it still goes
wrong? The main advice is to not
ignore the problem and to act
promptly. Your bank may be able
to help, but it can take time for any
solutions to be put into place.
"Many businesses are hesitant
to inform their bank of changes in
cashflow and unforeseen outgoings,"
says Anne Davis, head of regulation
and policy at the Institute of
Financial Accountants. "But this
is a bad idea, because banks can
offer businesses useful services.
"If you already have a loan with a
bank and are experiencing cashflow
difficulties, talk to them and other
lenders about changing the way you
make repayments - for example,
extending the term of the loan."

Vital statistics
n In January 2018,
it was estimated
the UK's modest
sized companies
were owed £26bn
in late payments.

n Between 70%
and 80% of small
businesses give
two weeks or less
for an invoice
to be paid.

n The Federation
of Small Businesses
calculates that
more than 30%
of payments to
small businesses
are late and the
average value of
each payment is
more than £6,000.

n One-third (32%)
of businesses write
off up to 10% of
late payments
each year.
n Half spend at
least two days a
month chasing
unpaid invoices.

85
http://www.GOV.UK
YOUR BUSINESS SUMMER 2018

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