One of the most difficult tasks for SMEs is cashflow management, made even more challenging by the UK’s late payment culture which has left many small businesses struggling.
The old maxim ‘Cash is King’ was never truer than in today’s uncertain economic situation. It is an important tool when evaluating a business as an investor, however, good cash flow management is not only of relevance to large listed companies – it is vital for SMEs as well, even those backed by private equity.
With billing and collection practices now more important than ever, there is no better time to review and strengthen your procedures. Here are some tips which every SME should consider:
Establish an effective new client take-on process – don’t take on any client who walks through the door. If you’ve not worked with them before, take the time to do research and find out who you’re dealing with. You don’t want to waste time and energy on clients who are notorious for not paying, or indeed on unprofitable work.
- Don’t discount rates to win work – it can damage your brand and cut profits
- Consider alternatives beyond the hourly rates – blended hourly rates, fixed or flat fees, contingent or percentage fees, retainer etc. This may be a good way to maintain good client relations, and get paid!
- Ask for payment on account – getting cash in advance for ongoing assignments or complex engagements.
- Offer early payment and pre-payment discounts
- Protect billable time – let your administrative team or accountant manage billing, thereby freeing up time for chargeable work.
- Reward your staff and partners for doing well with collections – and make them accoutable for late billing.
- Set reminders and safeguards – set rules such as sending invoices in a timely manner and following up with letters, emails or phone calls if payment isn’t received within the prescribed time frame.
- Get help – Using a professional service to help manage receivables is something to consider before accounts become a serious collections problem.
While profit is valuable and important to the viability of the firm, good cashflow is what will keep the doors open. Poor invoicing and collection procedures can create easily avoidable problems. So make sure your practice management is achieving the right results for your business.
At Beavis Morgan, we work with our clients to put processes in place which make it easier to run your business and to maintain effective management of your company’s working capital.
We assist with management accounts, enabling better control of your financial situation and awareness of the business in real time, enhancing planning for the peaks and troughs. And, as well as offering a Virtual FD service, we provide high quality solutions for your bookkeeping, VAT and payroll needs.
Where your business requires finance, our partner business BM Structured Finance can help. We match the most suitable products to each individual circumstance and work together to ensure compatibility and satisfaction, thereby enhancing the business’ cash flow liquidity and facilitating maximum growth.