With the current turbulence in the world of banking, Business Link advises that companies in Sussex should mark the start of the new financial year by resolving to keep a tighter grip on their cash flow.

New research from the Business Link South East Business Monitor (fieldwork dates November/December 2007) supports this view, showing that ensuring prompt payment from customers is a key challenge for nearly half (45 per cent) of companies in the South East.

“The old saying that ‘cash is king’ is as true now as it has ever been,” said Laurence Thomas, Business Link adviser. “Money is no use to a business until it is in the bank – and it is poor cash flow that is the biggest single killer of otherwise viable businesses.

“Even companies that have never had any problem with cash flow or credit control need to have systems in place otherwise the loss of a major customer or events over which they have no control – such as the current credit squeeze, a problem that has its origins on the other side of the Atlantic – can have serious knock-on effects.

“The start of the new financial year on 6 April makes for a good opportunity for company bosses to set themselves a financial resolution and to make sure they have robust credit management systems in place.”

Business Link recommends that companies should have at least some of the following credit management procedures:

• Carry out credit checks on new customers before supplying them with goods and services.  Don’t forget to up-date your credit checks on larger existing customers at least annually.
• Set credit limits for all customers and have procedures to ensure they cannot be accidentally exceeded.  Review the limits – up or down – at least annually or when events suggest a change is necessary.
• Beware the “surprise” order.  You may have received it because no other supplier will give credit!   
• Be clear right from the start about your terms of business.
• Send your invoices promptly and, for major values, check they have arrived.
• Keep an aged debtors ledger so you can see at a glance who owes how much and from when. Review it at least monthly. Set up a monthly “debtor days” report and monitor trends.
• Send a statement of account monthly.
• If payment is not received within a few days of the due date, phone the customer to establish that there is no dispute regarding the invoice(s) and agree a date when payment is promised.  Follow up to ensure that promise is kept.
• Do not be afraid to withhold further supplies if an account is delinquent or exceeds its credit limit.
• Set up procedures and time scales for collecting overdue debts. These can include: phone calls, a series of letters, personal visits, using a collection agency and action through the courts.
• Consider charging interest on the late sum – as allowed under the Late Payment of Commercial Debts (Interest) Act 1998.
• Make use of technology – send invoices by email (they won’t get lost or held up in the post) and ask for payment by BACS or CHAPS to prevent the risks associated with bounced, missing or lost cheques.
• Carry out weekly cash flow forecasts for the short term, monthly for the longer term.

If cash flow forecasts show that money is likely to be tight in coming months, Laurence Thomas advises keeping your bank abreast of the situation and also considering options such as factoring and invoice discounting.

Laurence concluded: “Don’t hide from financial problems – confront them. Once you have a system in place it is relatively easy to keep on top of your debtors. The benefits will include being able to reduce your borrowing, a more dependable supply of cash and less stress. You will also be nearer the front of the queue when your customer is paying his bills, as the businesses that chase for payment tend to get paid sooner.  However, always think credit management rather than credit control.  Inflexible application of rigid rules can turn credit control into sales prevention.  Management of debtors at a senior level will ensure that the correct balance is struck.”

For a free guide to setting up credit control systems and managing cash flow call 0845 600 9 006 or visit www.businesslink.gov.uk/southeast