Many businesses are finding conditions very difficult at present. Not because they are unable to make sales, but because they are experiencing severe cashflow problems. Some commentators are forecasting that around 12% of small businesses are at risk of failing because of poor cashflow control. If you are giving credit to customers, now is a good time to fully review your credit management systems (if you haven't already done so).
One of the best systems you can introduce is to prepare a short-term cashflow forecast each week, whereby you analyse your anticipated cashflow performance over the next 4 to 5 weeks. If this analysis indicates that you are going to have a problem, then now is the time to rectify the situation by contacting debtors and trying to ensure that payments are made, having discussions with suppliers to slow down payments or presenting a case to your bank for a temporary overdraft facility.
Many businesses are considering alternative methods of getting payment including establishing direct debit facility, confirming payment terms to all customers and then being proactive on the due date for payment. If a customer has not paid, contact them immediately to encourage prompt payment.
It is a good time to review your systems to ensure that invoices are being dispatched promptly as soon as goods or services are provided. Are the invoices in accordance with the customer's requirements? (Otherwise the invoice will be delayed in its processing, which will delay payment). Are you preparing a debtors' aged analysis each month and is the analysis being used to chase up any customer who has an amount outstanding for more than your stipulated payment time? If so, these people should be immediately contacted and arrangements made with them for payment.
If you would like more information to assist you in the short-term management of your cashflow position or any other advice on cashflow management, please contact us.www.business-advice.co.nz 39
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