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Nov 8 2019
Credit Control

How to increase cash flow and reduce debt

Having a good, positive cash flow is vital for any business. In fact, many companies, even those that are only marginally financially viable, can remain in business for years, as long as they are in control of their cash flow.


Even companies that are running at a loss can carry on trading as long as their flow of incoming cash is enough to support ongoing trading.

So, cash flow is a vital part of any business’s ongoing trading status. Credit control is another key element. Many companies will take as long as they possibly can before settling outstanding bills. The length of credit a company can agree with its trading partners is crucial; sometimes even more so than buying from the cheapest supplier.


Hardly anybody now pays bills on a net 30-day basis. The majority of businesses will negotiate extended credit terms before beginning trading; 45 days, 60 days, and even 90 days are not uncommon.

 

Policing cash flow forecasts

Sound financial management takes this into account when creating cash flow forecasts, along with when they expect to be paid themselves. If the credit-control people can stay on top, ensuring that payments and receipts are made on agreed time limits, all will usually be well, as long as the business is trading profitably.

But even profitable businesses can land themselves in deep water if their cash receipts are not made to schedule. If the bank is empty or they are at the edge of their overdraft limits, they cannot pay suppliers and business will grind to a halt. It can even be responsible for the company failing.

 

The importance of effective credit control

The job of credit control, or the business owner in a small business scenario, is to increase cash flow, to speed up the incomings and try to ensure they outweigh the outgoings. If successful, this has two effects. In the first place, it ensures that the company can continue to trade. But just as importantly, in the second instance, it means that the outstanding debt situation is continually being reduced.


Reducing debt will not only facilitate better profits in the short term, in the long term it also reduces the likelihood of a business going under through the pressure. It perhaps even negates the chance of any legal action being taken by creditors. In other words, increasing cash flow and thereby reducing debt will provide a much healthier trading situation.

 

Make sure your business has enough oxygen – contact First Capitol Collections today

If you are experiencing problems with debt collection, it could be that you need the help of a professional debt collection agency. Why not call us here at First Capitol Collections, today, on 03333 444991. Remember – increasing your cash flow provides your business with oxygen – without it, you can’t breathe.

Get to know your customers

Having a good relationship with your customers is good practice for encouraging customers to return, but it actually does so much more than simply driving repeat business. Knowing your customers can be tremendously profitable, no matter what industry or market you work in.

 

Why you should get to know your customers

Having knowledge of your customers gives you an insight into the way they work. If a customer pays on delivery, you can be reasonably sure of their money, whereas if a customer tends to quibble over every item on the invoice, delays making their payment until the very last minute, and always expects more for their money than anyone else, you could consider tightening terms and conditions before you do business with them again.

Building up a customer list of known and trusted customers can stand you in good stead for the future, enabling you to avoid poor prospects and embrace preferred customers.

 

How to get to know your customers

With some businesses, the only way you get to know your customers is by doing business with them. However, you can encourage engagement with your customer base by asking them to sign up for a newsletter or promotional emails, or else by asking them to fill in short surveys so you can ascertain the level of engagement that they are looking for.

Customers do like to feel special, so personalised email offers can work very well. Just be mindful that they are also quite busy, and that they are unlikely to want your products or services every day; moderation in your promotional contacts is a must.

Once you have dealt with a customer more than twice, you can truthfully claim that you have a business relationship. It is then up to you to use your initiative as to whether you should offer them extended terms, loyalty discounts or other tokens to acknowledge this status.

 

What to do when it all goes wrong

Very occasionally, things go wrong. A previously good customer can suffer a change of fortune and no longer be able to pay their bills. If this is a short-term blip, likely to resolve itself soon, you can choose to waive interest charges or missed payment penalties, especially if they are honest with you about their reasons for non-payment. However, should they continue to struggle and perhaps become evasive, you may have to take steps to protect your own business.

This will usually be by handing over the outstanding debt to debt recovery services who work intensively to retrieve monies owed. Debt recovery agents have the time, know-how and resources to trace defaulters and make contact through doorstep collections agents. Because of this, a debt collection agency can have a very high success rate.

Sending debts to collections services is never an easy decision to make. But sometimes it is the only solution. First Capitol Collections is a surefire and reliable way to retrieve your outstanding money. They specialise in door-to-door debt recovery but offer a varied range of other debt services too.

Ways to get your customers to pay on time

Keeping your revenue flowing can seem like a constant battle, particularly if your customers regularly delay settling their outstanding invoices. No matter how clear you are in your business terms, it’s common to have missed deadlines and even debts that appear on your books for months afterwards too!

If you’re determined to keep your cash flow healthy, how can you improve the chances of customers paying on time?


Manage customer expectations

There are times when customers are slow in settling their bills due to genuine misunderstanding, forgetfulness or a failure to fully appreciate the validity of the deadline set.

Either way, getting more customers to settle debts on time can hinge on your earliest discussions with them. There can be no room for ambiguity. Customers need to know upfront, exactly how payments are structured, including clear deadlines.


Firm up the deal

It’s worth putting in checks and measures to make sure your customers do fully understand and appreciate your terms, including the necessity for payment dates. Having them read contractual obligations and sign them, in front of someone else, can focus their attention on paying on time.


Be persistent and polite

Late payments are frustrating, especially if you’ve carefully followed the above steps! However, it’s strongly recommended that you keep a cool head. Go systematically through clear steps to contact the late payer by various communication channels (including a friendly reminder just prior to their payment deadline).

Immediately after the date, you may want to invite them to contact you to discuss reasons for the delay. If their late payment has a valid cause, it’s a chance to offer measures such as staged payments over a longer period. Having some cash on time can be better than nothing!


Professional help to avoid late payers

For many companies, the best way to ensure customers hit their payment deadlines is to outsource credit management and engage the services of a debt collection agency. The fees involved in debt recovery services should be balanced against the outstanding amounts, but also your time and stress levels in tackling late payers!

Handing the whole process over to efficient and effective professionals can help focus customer attention on the issue, increasing the likelihood they’ll see settling your invoice as a priority.

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enquiries@firstcapitol.co.uk

03333 444991

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