Tuesday, 3 June 2014

Cash is King

Here at Pringle Towers, we recently had some work undertaken by a local firm of electricians.  Their work was good, they were tidy enough and I believe they represented good value for money.  So yes, I would recommend this particular firm of sparkies.  Upon completion of the work, they weren't able to tell me immediately how much I owed them as the job had evolved as it had gone on, however I did receive an invoice just a couple of days later along with details of how to pay.

Now because I didn't receive the invoice straight away, some of the urgency to make the payment had gone and I did procrastinate logging on to my internet banking. That said, within less than two weeks I had been contacted twice chasing payment...

and so I paid...

which is the point of the story.

Cash is so important to any business. It is true that “Cash is King”. Businesses fail because of a lack of cash, not because of a lack of profits. A loss making business with a limitless source of funding will be able to continue indefinitely (this is the injustice of the football premiership), while highly profitable businesses can become vulnerable if cashflow isn't properly managed. For this reason, the collection of customer receipts is the key element of the sales process. After all, until your customer pays, you are just a charity.

Now undoubtedly there can be cultural issues which make us uncomfortable asking for money and I have spoken to many new business owners who prefer to avoid chasing debts. However, if your livelihood depends upon your business then you need to overcome your nerves and have a clear strategy when it comes to debt collection, from friendly reminders all the way to legal proceedings.

The key is to strike while the iron is hot.

The length of time it takes you to issue an invoice sends a clear signal to your customer, rightly or wrongly, on how keen you are to receive their payment. This message is further reinforced by your method of credit control. At the most basic level people will pay whoever shouts the loudest and, as long as they perceive you have given them value for money, the customers that you want to keep won't think any less of you for chasing what you're owed.

So make a plan today to man up and get tough with those slow paying customers.

To find out how Pringle Accountants can help you, visit our website www.pringleaccountants.co.uk