Cash is king but knowledge is power

cash-flow-managementThe Office of National Statistics (ONS) Q2 UK economic figures show the economy has entered a strong growth phase. Economic indicators show GDP growth is 0.6 per cent, with manufacturing up by 0.4 per cent, services up 0.6 per cent and construction 0.9 per cent.

But as the number of B2B transactions are increasing how effective is your company's ability to collect cash on outstanding invoices?

During a period of growth, some companies may suffer from “over-trading”. Sustaining business growth and investment with poor cash flow can be difficult.

The Telegraph recently reported that in 2013 the average small firm has £31,000 worth of unpaid invoices and will wait almost eight weeks longer for their cash than contractually agreed.

Few businesses can operate successfully on a cash-only basis so a prudent approach to providing customer credit makes good business sense.  Taking a few simple precautions to ensure you are better informed before you give credit could make all the difference to your cash flow.

Here are our top tips:

  • Check that a business exists by verifying the correct company name and registered address. This will ensure you contract with the correct entity and that invoices won’t go astray. Also, make sure you have agreed the terms of payment for the supply of goods to your customer as part of the contract.
  • Check their credit worthiness to establish their ability to pay for the goods and services you supply. Use any credit limit as a guide to the amount of credit you give or the amount of credit outstanding at any one time.
  • Keep checking. Use a monitoring service that notifies you if there is a change in the “status” of your customer. This might be a change of name, address, rating, credit limit. It may even alert you if the company has incurred any County Court Judgements (CCJs).

Any of these factors could be early indicators of potential payment problems.

About the author: Ray Ruffels is Director of Business Information Services at Jordans Limited. To find out more about how using information can help your business visit http://www.jordans.co.uk/business-information/

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