Friday 16 April 2010

10 Top Tips to Improve Your Cashflow

Although many businesses still use profitability as their main Key Performance Indicator (KPI), if you run out of cash then you have no business left to operate (and the measure of profit or loss becomes completely irrelevant).

Good cash management is imperative to every business, but never more so than in the current economic climate. With optimism slowly returning to the business community, there is incredible pressure on companies to return to a growth profile at the earliest opportunity. This can be very dangerous because if working capital is already stressed, and business picks up, then the need to increase working capital at a time when lenders are looking to keep it held back could push the company into a scenario of slow cash flow strangulation or, even worse, to over trade.

By properly organising the credit management area of a business and injecting some structure and metrics into the cash collection process, as well as getting “stuck-in” to the traditional chasing routines (phone calls, Dunning letters, instigation of legal action etc.), you can make a huge difference to your working capital at a time when it really counts.

Here I highlight my “10 Top Tips to Improve Your Cashflow”: -

1) Credit Check – it is key to the whole process that you ask any prospective customer requesting a credit account to complete a form detailing their trading status, registered address, company number, VAT number etc in order that their credit status can be reviewed by one of the industry standard providers, such as Dunn & Bradstreet, and an opinion can be formed as to what credit level (if any) would be appropriate to start trading on.


2) Purchase Order – you must make sure that a valid purchase order is obtained from the customer in line with their accounting policies and system. By omitting this stage you are running the risk of the client suggesting that whoever made the order request wasn’t acting on behalf of them, and this could therefore cause delays in getting paid on that order.

3) Terms & Conditions – ensure that terms (i.e. payment due 30 days after the date of invoice) are fully known for each customer, and that each customer is aware of them too (you would be surprised how often these details are not fully known internally or externally!!!).

4) Daily invoicing – wherever possible, raise invoices on a daily basis. The earlier the date of creation (and therefore the tax point), the sooner the invoice will become due and payable, and the more efficiently you will be able to unlock the cash from it. Never leave the invoicing process to one large batch run at month end, otherwise you will add a significant amount of days to the cycle and risk greatly damaging your cash flow.

5) Forecasts – ensure you have a minimum of at least 12 weeks forward forecast visible, but preferably longer. This will give you a rounded cash position for the business, highlight pinch points and what action needs taking as a result, and help to define each month’s targeted collections for the Credit Control team.

6) Targets - set monthly collection targets for the credit control team and, if possible, write this on a white board in full view in order that the credit control staff can visualise this target. In addition, give them a daily update beneath this figure so that progress can be monitored as the month progresses. A target and actual daily average collection figure can really help to motivate the team towards achieving their goal.

7) Telephone chasing – as soon as an invoice becomes overdue (i.e. beyond terms) then the process of telephone chasing should begin. This will let the customer know that you are organised and systematic and serious about getting your cash in. During the call, ensure that there are no issues or disputes with the invoice – if there is an issue, it is imperative that this is resolved internally immediately in order that the customer’s query can be resolved, and that any further barriers to payment are removed. For repeat business clients, it also gives your team the opportunity to create relationships with members of the client’s Bought Ledger team which, if done well, can then help to make the collection process more efficient on a month by month basis.

8) Dunning letters – the Company should operate a strict regime of chasing letters to be activated on 15, 30 and 45 days beyond terms, with the vocabulary getting stronger with each. If a customer believes they are about to be taken legal then this will often unlock the outstanding cash.

9) Directors/Sales/Operations Team Members – if the telephone chasing and Dunning letters are getting nowhere, then a further step before going legal is to ask your Directors or members of the Sales and Operations teams to help. They may have relationships with key individuals in the customer’s company built during the initial marketing or sales negotiating process. Again, a call to the right person in the customer’s team can often help to unlock the cash quickly.

10) Legal action – if the telephone and letter chasing produces no results, don’t be afraid of going legal. There are many solicitors out there who will undertake the initial legal letter to customers for £2 + VAT each. No business likes to have CCJ’s entered against them, but will often wait for the legal letter to arrive before finally paying up.

Remember, the longer you leave it to chase overdue cash, the harder it becomes to eventually collect it!!!

If you need any further assistance with your cash management process then you should consider the services of an Interim Finance Director who can help you to ensure that the requisite systems are put in place and are fully functioning to their best effect. Email
phk@intervallum.co.uk to arrange a meeting to discuss this further; Intervallum Limited can make a huge difference to your working capital at a time when it really counts.

Tuesday 6 April 2010

PHK’s Budget Comments on ITN National News

Many thanks for all the kind comments and emails that I have received since appearing on the ITN National news on budget day, where ITN were filming from the “marginal” constituency of Burton-upon-Trent.

I was asked to go along by the Chamber of Commerce to give the view of the business community, and was more than happy to do so.


On the day itself, after a "live" feed on the news before the budget speech was made, I was questioned for my opinion on the budget on “live” national TV just moments after the Chancellor had sat down (and with little or no time to reflect further on the points delivered), and was then subsequently filmed for a recorded piece for the news bulletin at 6.30pm.

For those of you that have asked, some of the footage can still be viewed at the ITN site via the following link: -

http://www.itnsource.com/jp/shotlist/ITN/2010/03/24/T24031035/?v=0&a=1

It was a thoroughly interesting experience, although I feel the real budget decisions are yet to be made and won't come until after 6th May.