Cash-flow the lifeblood of business

Credit control has never been more vital than in today’s environment.

It must be a priority that all businesses ensure that their customers are settling invoices on time.

With slim operating margins the norm, very few companies can afford the spectre of significant bad debts.

Small businesses in the UK are owed billions of pounds in late payments, but new research has shown that a third are reluctant to chase slow-paying customers because they are worried about upsetting them or feel embarrassed.

Four in five, SME’s say they avoid chasing debtors because they find the process 'uncomfortable', while the remaining 20% are afraid of antagonising customers.

This is a dangerous approach resulting in more than a third of UK SMEs reportedly writing off thousands of pounds of bad debt every year.

The following are some procedures which companies can employ to increase the efficiency of credit control.

Set credit limits for each customer and review these regularly.

Be concise in trading terms for example it is better to specify 30 days from date of invoice rather than 30 days from end of month.

Issue monthly statements detailing invoices paid and those outstanding.

Score your customers and set a collection policy accordingly.

Do not let overdue payments go unchallenged.

Evaluate aged debtors on a weekly basis.

Prioritise collections and press for settlement of the highest values first.

Have a plan of action if payment is not forthcoming within a set date.

Despite the vital importance of maintaining a healthy cash flow three quarters of SME’s do not have a person or a procedure in place for chasing bad debt and a vast majority have no established escalation process for late payments. This is a recipe for disaster.  

 

Adding value

 

Essentially there are two courses of action when attempting to boost the bottom line, cut operating costs and generate additional revenue.

The first action that many organisations take is to reduce staffing numbers, seeing this as a quick fix.

It is a tool by which management perceive they can demonstrate that they are getting to grips with the problem.

However, there is a danger that in line with reduced personnel there is an accompanying decline in operating standards. In such circumstances customers often choose to vote with their feet.

The sales director only has one shot in his/her armoury namely increase sales. Sales targets can always be raised but a sense of commercial realism also needs to be applied.

If the company is marketing a totally unique product or service the task is easier but for the most part there are many organisations are offering a similar range of products in a broadly similar price range.

In many instances companies would be advised to make customer service their USP but this requires the commitment of a dedicated work force not one that is pre-occupied with the spectre of further redundancies.

 

Boosting sales performance

 

There are some basic tactics which you can employ to increase your sales.

Companies that are increasing their sales turnover usually have an attractive staff incentive programme in place. Make sure you keep track of what type of “carrot” your competitors are offering to their sales force.

Upselling is a cost effective way to boost bottom line returns.

Essentially, upselling involves adding related products and/or services to your sales portfolio and making it convenient and necessary for customer to buy them. Crucially when upselling the customer has to be persuaded of the benefit.

Give your customers the inside track.

Try to stay ahead of the competition by having up to date brand and market information combined with technical back-up. For example if a new product launch is imminent it is better to keep the customer’s interest “warm” rather than push them into a purchase which they shortly will become dissatisfied with.

Differentiate your customers.

There should be a clear and obvious difference between your regular customers and others – a difference that your regular customers perceive as showing that you recognise and appreciate their value.

Repeat business is the life blood of any sales force.

Loyalty cuts both ways and becomes meaningless if all customers are treated as “someone off the street”.

 

A summer of stress

 

The European Central Bank continues its project of “stress testing” the financial health of Europe’s banks.

This exercise involves collating data provided by 6,000 auditors and central bankers from across the continent.

Problem loans buried since the financial crisis of 7 years ago are at long last being excavated.

Results of the analysis are expected to be announced in October but at this stage some estimates suggest that 30% of Europe’s banks could fail their “stress test” and be forced to scramble for support capital

Last week the market had a taste of the potential fall-out when Portugal’s Banco Espirito Santo suspended trading in its shares’ following concerns about accounting irregularities in its parent company. This news sent shares in London, Paris and Frankfurt lower.

Elsewhere the spectre of defaults by countries such as Hungary and Romania still plague the market.

The ongoing stress test comes as a timely reminder that all businesses operating in today’s climate need to have constant and rigorous focus to their commercial exposure.

Against the current competitive background it is very difficult to contemplate turning away business especially from a customer of long standing. Many times however, the best business is that which is left to competitors.

It may well be that turnover suffers when stricter controls are in place over such elements as payment terms and credit limits.

The reward for such fiscal discipline is obvious.

Avoiding defaults by customers still remains the surest way to protect the company’s bottom line.

 

The value of the human touch

Companies have traditionally thought of customer service as a cost centre, which made it a ripe target for cuts during the downturn. That has contributed to increasing frustration among consumers who have suffered with poor service in recent years.

Many organisations are opting for a digitally based service as opposed to the more traditional methods i.e. Barclays bank decision to replace cashiers with greeters armed with an ipad.

Although many operations are completed electronically in this virtual world we should never forget that essentially commerce is about people trading together.


The reality is that goods need to be moved from point of production to point of consumption and obviously the diverse elements which make up this chain cannot be achieved solely via a computer terminal.


It makes sound economic sense to foster and maintain good customer relationships as it has been determined that it costs up to five times as much to win a new customer as it does to retain one.


There is an old adage “value your customer,” this dictate has never been more important than in these uncertain and challenging times.

 

It’s within our power

External factors over which little control can be exerted will continually buffet all business sectors.

However, every organisation does have a potentially winning weapon in their armoury namely the opportunity to offer excellent customer service.

In today’s business environment everyone expects ultimate value for their cash be it the corporate customer or the man in the street.

It is a paradox that as trading conditions become tougher and business harder to win the level of service offered by many suppliers is falling very short of acceptable standards.

How much revenue is lost arising from an existing or potential new customer not wishing to endure the frustrations of automated answering and merely hanging up?

How much “repeat business” is lost owing to the failure to meet agreed delivery schedules?

With such experiences customers are left feeling that their business is not valued. It is little wonder that they choose to vote with their feet.

Customer service is not a difficult act to pull off – in reality all that is required is to give the customer the feeling that their business is important and they are valued, not just “one of a number” or even worse a nuisance.

Those businesses that focus their energies on customer service will see their business reaping the benefits

 

Morale is the lynchpin of efficiency

 

There is no doubt that there is an increasing sense of demoralisation amongst many sectors of the work force.

The causes for this are readily identifiable, many people are struggling with their own domestic finances whilst at the same time the need for increased levels of performance and efficiencies at work have rarely been as intense.

It is the responsibility of management to ensure that during these times staff members are encouraged to give of their best.

Unfortunately too many managers are remote from the day to day activities of their staff and appear to have the attitude that the people who report to them are lucky to have a job.

This mentality is counterproductive. All employees need motivating and incentives do not necessarily have to come solely in the form of financial rewards.

Some of the best run and therefore by definition most successful commercial entities are those where the workforce is engaged and feels part and parcel of the organisation rather than merely there to make up the numbers.