Tony's Tip No. 17 - Keep in touch to help your cash flow problems

Tony’s Tip No. 17 – Keep in touch to help your cash flow problems

Hooray, at last the economy is starting to move, businesses are increasing their sales.

We have waited a long time for this.

However for many small businesses this is a very dangerous time.  To grow they need cash and the banks appear loath to lend.  This is a major problem for the SME sector as they don’t have the power of the bigger companies to delay their payments and use their suppliers to fund their growth.

I keep reading about government schemes to make large companies pay quicker, but what small business going to risk their relationship with their larger customer by insisting  they abided by the rules?

There must be a better way, and there is.

Recently I have been mentoring a supplier to the Engineering industry whose sales have risen by over 10% in the last five months while reducing their debtor days and extending their creditor days, with the result that their creditors are funding their growth.

How have they done it?  They follow the Rules of Credit Management, which are simple, but will only work if you make them a habit.

The rules to follow are:

  1. Confirm the payment terms as you take the order
  2. Raise the invoice when the goods are delivered.
  3. Seven days later ring the client to make certain they are happy with the delivery, is the order correct and do they have the invoice.
  4. Ask if it has been passed for payment,
  5. Then ask if it will be paid on time. (They always tell you it will!)
  6. Two days before the due date contact the accounts to ask when the cheque is going out.

My client followed these rules, by making certain that before they raised each day’s invoices they rung those clients whose invoices they had raised the week before.  The result has been that those customers who paid reasonably quickly started to pay on the due date, an improvement, and their bad payers actually paid earlier but still not on time.  They are working on them and expect them all slowly to come into line because as they keep ringing they are building a relationship with each accounts department.

The most interesting thing is that as their relationship with those clients is getting better so their sales are growing.  This is because their calls are seen as sales calls, not debt chasing ones.  So as their sales they can fund their growth, safely.

So as you grow the golden rule that is to “Keep In Touch”.

Tony Dalton

© Tony Dalton
author of Cash Management
published by A & C Black ISBN 978-1-4081-3984-4
Buy it here!