Tag: Cash Flow

Why do we need invoice finance?

Pay up.

73% of UK SME’s have experienced late payment in the last 12 months and on average are paid 41 days later than the terms agreed.

This is despite moves to try to improve things like the Prompt Payment Code

The Prompt Payment Code (PPC) aims to improve the supply chain cash flow for UK firms by tackling the issue of late payment.

The Code is sponsored, hosted and administered by the Institute of Credit Management (ICM) on behalf of the Department of Business Innovation and Skills (BIS).

Code signatories undertake to:

pay suppliers on time

  • within the terms agreed at the outset of the contract
  • without attempting to change payment terms retrospectively
  • without changing practice on length of payment for smaller companies on unreasonable grounds

give clear guidance to suppliers

  • providing suppliers with clear and easily accessible guidance on payment procedures
  • ensuring there is a system for dealing with complaints and disputes which is communicated to suppliers
  • advising them promptly if there is any reason why an invoice will not be paid to the agreed terms

encourage good practice

  • by requesting that lead suppliers encourage adoption of the code throughout their own supply chains

The Prompt Payment Code has the backing of the UK Government, the British Chamber of Commerce (BCC), the Confederation of British Industry (CBI), the Forum of Private Business (FPB), The Federation of Small Business (FSB) and the institute of Directors (IoD).

Financial software firm XERO issued the research, which revealed that:

  • Over half (52%) of UK business owners worry about unpaid invoices
  • Worst affected regions found to be London where businesses spend 1.5 days per month chasing payments, followed by 1.3 days by businesses in Wales
  • The business sector spending the most time chasing payments was found to be HR (3 days), followed by IT & Telecoms (1.8 days) and Manufacturing & Utilities (1.7 days)

It also showed that the two main reasons cited by small business as being the causes of late payments were that their customers were also waiting for payments themselves (32%), as well as a lack of consistency on payment terms (27%).

For SME’s understanding their Cash Cycle is critical as lack of cash flow will kill your business, here is a example of how to calculate the cash cycle

cash-cycle

This means that you need enough cash in your business to finance 50 days worth of sales. If your sales are £1,000,000 per year, you will need cash of £136,986. In practice, your business will probably need more cash available than this to pay for rent, rates, wages etc. You may also get cash spikes at the quarter end if you pay VAT.

Here is a brilliant Cash Flow Improvement Tool from NAB http://oms.nab.com.au/media/10/power_of_one/CF.html

This model quickly and easily calculates your cash cycle but also shows the effect of making improvements.

Having discovered what the cashflow cycle is, what can you do to improve it? well that depends, assuming you have agreed the best possible terms with your suppliers, you need to find ways to speed up cash received from Customers, if your business Sells to other businesses the first thing to look at is Credit Management.

CIMA have produce a comprehensive guide http://www.cimaglobal.com/Documents/ImportedDocuments/cid_improving_cashflow_using_credit_mgm_Apr09.pdf.pdf

But Credit Management may not be enough on its own, perhaps Invoice Finance might help?

Invoice discounting is an excellent, cost-effective way for certain businesses to improve their cashflow position.

  • Invoice discounting is most suitable for businesses with good financial controls in place and a strong financial background.
  • Invoice discounting is suitable for business with an established credit control department.
  • Invoice Discounting is suitable for a wide range of businesses including manufacturers, wholesalers, transport firms, employment agencies and providers of some business services.
  • Suitable businesses for invoice discounting are growing businesses because the level of funding grows in line with increasing sales.

In August 2013, the UK Government became a Buyer of invoices on the MarketInvoice Platform, investing directly in UK SMEs looking to access working capital and grow their businesses.

How does it work?

Any company can use MarketInvoice provided its sells goods or services to other large businesses.

Its a ‘pay as you go’ service.

Companies are vetted and the invoice must be to a large corporate not to other SME’s.

Its confidential so your customer will not know you have used MarketInvoice, if the customer doesn’t pay you will have to refund the investor.

There are other similar products on the market from other providers so its worth considering the options available.

Don’t let lack of cash flow kill your business!

steve@bicknells.net

5 key questions you need to ask your FD

Profitability

As businesses grow, their needs increase. The person steering the finances needs to be someone who can take on a broad commercial role. Forecasting, IT, tax issues, insurance and back office functions – all these need to run smoothly. But a fast-growth business needs someone who can anticipate both future opportunities and potential problems.

A good financial director will help owner-managers understand which aspects of the business are the most profitable, as well as forecasting ways to exploit other opportunities. (Santander)

So what key questions should you regularly ask your FD…..

  1. What is our cash cycle and how can we improve it – Cash Cycle Blog
  2. What Key Performance Indicators should we use and what are they telling us – KPI Blog
  3. How can we improve profitability – 15 ways to improve profitability Blog
  4. What is our Business Plan and is it the right plan – Business Plan Blog
  5. Can we reduce Overheads – 10 creative ways to reduce overheads Blog

steve@bicknells.net

4 business models where customers fund your business

fotolia_491138_s1.jpg

Finding ways to fund your business can be a challenge so hear are some business models where your customers provide the funding.

Subscribers

This can apply to many situations ranging from Networking and Memberships to Sky TV or Microsoft Office 365, get your clients hooked on paying a monthly or periodic payments and  it should work wonders for your cash flow.

High Demand

Any product in short supply creates a situation where clients are prepared to pay now in order not to miss out, here is an example:

Microsoft unveils its new Xbox One console Friday, one week after the release of the rival PlayStation 4.

Microsoft says the supply of the new $499 consoles is its biggest ever. But with record pre-orders — more than double those of the Xbox 360 back in November 2005 — the consoles may be hard to find.

November 2013

Pay In Advance

Often used in the home improvement market for example conservatories, kitchens, bathrooms, getting customers to pay a deposit or in some cases all the money upfront (or on finance) puts you in the best possible position especially if you can set up accounts to pay your suppliers on 30 or 60 days.

Market Place

Getting paid to bring people together is a great business model think of ebay, dating sites, or any on line market place where the owner gets paid when a deal is done.

How do you fund your business?

steve@bicknells.net

 

10 financial mistakes all new business should avoid

Stress business woman

Starting a new business is always a challenge but there are some common financial mistakes that all start ups should avoid.

  1. Lack of Planning – Businesses normally start with a great idea but you need to have business model that works and to at least have a basic business plan and cash flow.
  2. Over Trading – this happens when a business expands too quickly for its working capital, when you start a new business its tempting to accept every order without considering whether you can have the resources and the cash to deliver.
  3. Wasted Marketing and Advertising – new businesses are an easy target for marketing companies but its important to stick to the essentials to start with, having a website, e mail and business cards are essential, magazine advertising and other things can be done as the business grows, in the early stages you are experimenting and finding your market so if you spend too much too soon you might promote the wrong things at the wrong price.
  4. Wrong Business Structure – Before you start your business get some advice from your accountant, its important to choose the right structure not just for tax reasons but also for investment and ownership.
  5. Wrong Staff – Choosing the right team is critical for business success, choose staff that have the right skills, the right attitude and are dedicated to the success of the business.
  6. Over Ambitious – All too often businesses plans are over ambitious with sales growing rapidly, often they prove to be unrealistic, when preparing a sales forecast start with your order book and be cautious in your assumptions.
  7. Overheads – Many businesses over spend on overheads for example renting premises too early, work from home, if you can, to minimise costs.
  8. Stock Problems – Buying the wrong stock, under or over stocking are also issues for start ups, try to adopt a ‘just in time’ stock policy.
  9. Getting Paid – A sale is only a sale if you get paid, any one can give things away, make sure you manage your clients and get paid on time.
  10. Competition – Keep an eye on your competitors, they will be watching you and responding to maintain their market share.

steve@bicknells.net

10 ways to get paid faster

Millionaire

Late payment kills businesses, it’s a fact.

Latest research shows that British SMEs are having to wait an average of 41 days longer than their original agreed payment terms before invoices are paid. (source: BACS)

So what can you do to get paid faster?

  1. Get payment upfront – It might sound obvious but do you ask for payment with order? or deposits? or to be paid on delivery?
  2. Get Stage Payments – on projects agree stages and collect payment before you do the next stage
  3. Raise the Invoice quickly – as soon as you can bill the client send out the invoice
  4. Agree Terms of Business and Payment Terms before you start any work
  5. Make sure you know who to bill and who to chase for payment
  6. Make your invoice stand out, use bright colours and send a copy by Post and E Mail
  7. Offer multiple payment methods – Credit Card, BACS, Cheques, PayPal – make it easy for your client to pay you
  8. Offer a discount for prompt payment
  9. Charge interest for late payment
  10. Deal with any disputes quickly

steve@bicknells.net

20 ways to improve cash flow

Cash

Cash is vital to you and your business, lack of cash kills businesses.

So how can you improve cash flow:

  1. Prepare a detailed cash flow forecast, schedule your direct debits and standing orders, knowing how much cash you need and when will help you focus on where the cash will come from
  2. Invoice your clients as soon as you can, often small businesses invoice late and this just lengthens the time it will take to collect payment
  3. Get stage payments on large contracts
  4. Negotiate payment terms with your suppliers, try to at least match the client payment terms with the supplier terms
  5. If you are able to spread payments do it, for example, most insurance companies will offer you that chance to spread the payments over 10 months
  6. Adopt ‘just in time’ for stock items, don’t carry more stock than you need to
  7. Pay sales commissions only after the client has paid
  8. Change weekly payrolls to monthly where possible
  9. Sell assets you don’t need
  10. Sell obsolete and slow moving stock
  11. Consider paying mileage allowances rather than owning company cars
  12. Chase your debts
  13. Get a good credit rating as it will help you negotiate better supplier terms
  14. File your accounts and tax returns on time to avoid penalties
  15. Credit check your clients and agree terms based on their credit history and rating
  16. Diversify to smooth out seasonal trends
  17. Control your costs and reduce them where possible
  18. Make cash collection a KPI for your business
  19. Finance your fixed asset purchases
  20. Use Invoice Finance if your clients demand long terms

steve@bicknells.net