Friday, 29 June 2012 09:22

Inefficient cash collections make a long summer of payment chasing for SMEs

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A failure to follow the 'golden rules' of credit control is leaving many SMEs facing a significant burden of payment chasing this summer, says RBS Invoice Finance.

The bank's specialist team has compiled figures showing that small firms are currently receiving payments an average of 30 days beyond the agreed deadline.

Managers are spending 130 working hours - equivalent to around three weeks - each year chasing overdue payments, too.

As well as being frustrating and time-consuming, this can also have knock-on effects by reducing the available cash to the business, leading its cashflow to look much less healthy than it might if payments were made more promptly.

With a turbulent economy taking hold of businesses nationwide at the moment, RBS Invoice Finance director of strategy Mark Qualter stresses that companies should not be afraid to seek assistance to help significantly improve their day-to-day financial circumstances.

Time & Tide

pressure

The old adage says that "time and tide wait for no man", and business leaders who are caught in a wave of late payments might feel that phrase is particularly pertinent.

However, the RBS Invoice Finance figures show that more efficient cash collections, and an elimination of unnecessary payment chasing, could actually add three working weeks to companies' time each year.

In small to medium-sized firms, where time is at a premium among overworked managers, this could be crucial in allowing the company to develop and progress.

Mr Qualter says:

"By reducing the need to chase up payments, SMEs could free up to three extra weeks every year - time that can be spent concentrating on business development, marketing or improving customer relations.

"Whether SMEs choose to use invoice finance or another approach to manage their cashflow, all businesses will need to take a structured approach to credit control and management."

The Golden Rules

To give SMEs somewhere to start from, the bank has compiled a list of Golden Rules for credit management, which highlight some of the main issues such as:

  • adopt a worst-case scenario approach to cashflow projections, to ensure you are prepared for any eventuality;
  • use incentives such as discounts to encourage and reward prompt payment;
  • be prompt and professional in any investigations of unpaid invoices;

Companies can use many different techniques to keep on top of the invoicing process, from earlier use of debt collection agencies, to improving internal credit control procedures and regularly reviewing customer credit limits.

Simply being clear and consistent in your payment collections is a good place to start. But remember that "a sale is only a sale when the money is in the bank".

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