Speak softly and carry a big stick

 

Funding issues continue to impact on businesses with more and more customers actively employing various tactics to delay payment to suppliers.

Credit control and the monitoring of payments is an increasingly critical element of every business.

When a customer exceeds the agreed payment terms, they are in reality using the supplier as an alternate (unsecured overdraft).

This situation if left unchecked can spiral out of control. As the situation deteriorates the supplier can find themselves in the invidious position whereby they are forced to keep “trading” with the errant customer for fear of realising a bad debt.

Think of the parallel to the Euro zone bail out situations – it is a slippery path.

Slack policing of accounts receivable will have serious consequences. At best tardy payments damage cash-flow and at worst can often be the precursor of a company failing with the end result of a total write off.

Take a long hard look at your accounts receivable. Undoubtedly there will be examples of aged invoices where 30 day terms have drifted into 60 and beyond.

Consider the damage that is being done to your company’s financial position and ask the question “who is taking advantage of us?”

When gamekeeper turns poacher

 

A former head of Oxfam's counter-fraud unit has been jailed for defrauding the charity out of nearly £65,000.

Edward McKenzie-Green, 34, of Chipping Norton, Oxfordshire, was handed two years and five months imprisonment for making payments to fictitious firms.

The Old Bailey heard McKenzie-Green had made £64,612.58 in payments from Oxfam to fictitious firms between February and December 2011.

One of the lessons of the recent economic downturn was the need for all businesses and organisations to remain alert to the potential for fraud.

Entrepreneurial owners of SME’s are a prime target for fraud as overseeing finances doesn’t always come naturally to them. If a founder is focusing mainly on the product or service being sold, and only minimally on administration, it leaves a business vulnerable to fraud.

In smaller organisations fraud can take many forms e.g. invoice scams, to suppliers providing kickbacks for inflated purchases, theft of stock, fictitious expenses etc.

For larger organisations the potential for various fraud activities exists but the numbers involved are far greater.

It is vital that all organisations have systems in place to monitor all of the company’s finances and commitments in a clear and concise format.

Simple but effective systems of checks and balances can go a long way to limiting if not removing the risks.

It is all but impossible to ensure that any organisation is “fraud proof” but by establishing robust and efficient systems some measures of comfort can be introduced.

 

 

Where's the family silver?

It is incomprehensible that so many companies be they large or small fail to keep an adequate control of their inventory levels and stock turn. Similarly companies adopt a less than rigorous approach in respect of their receivables.

The focus of many managers’ remains firmly fixed on achieving increased sales performance. As a result the question of housekeeping is often put on the back burner or it would appear totally neglected.

It is a truism that no business deal is complete until the invoiced funds are in the seller’s bank account.

This begs the question: how comfortable are you with your stock and debtors controls?

A worthwhile exercise would be to review operating systems now rather than adopt the let’s hope for the best style of management.

 

Complacency can be costly

It is all too easy to become complacent particularly when the business relationship is long established. Accordingly when companies fail the usual reaction is one of surprise.

However very few companies fail overnight and in the majority of instances there are numerous warning signals of a company’s demise.

When dealing with any company always rate their efficiency levels. If your dealings leave you with the impression that the company is muddled in its thinking or lethargic in its dealings then these are early indicators that the company is languishing.

If the staff shows a marked lack of commitment this is also an indication of a demotivated workforce who clearly sees the writing on the wall.

A company who is failing in its obligations to either suppliers or customers will lose business to competitors. A declining market share can rapidly become a slippery path.

Companies that ignore changing market trends and technical innovations are doomed to fail. Companies need to be responsive to market developments and changing patterns.

Be alive to high levels of staff turnover, a continuous exodus of staff is a sure indicator that all is not well and normally a precursor of a more substantial problem surfacing.

 

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.

 

KYC - know your customer

 

 

In the US this basically refers to a due diligence process undertaken by banks and financial institutions to combat fraud, identity theft and general scams.

It is a procedure that most organisations would do well to follow.

Rapid advances in technology continue to transform the way we do business. Everyday business tools would have been regarded as flights of fancy not so long ago. With the unstoppable rise of e-commerce come challenges.

One of the biggest dangers is the lack of personal contact between a company and its customers. Obviously this is not an issue for online retailers selling product over the net and being paid via a Debit card or Pay Pal etc.

However their is an increasing trend for B2B sales to be concluded by email and even SMS. With the loss of the personal contact the identity and customer relationship suffers.

The surest way to avoid problems is by knowing your customer and understanding their business.

This relationship and mutual understanding cannot be achieved via a key pad and electronic ordering system.

 

Cheques and balances

In light of recent “Black Holes” banks have been rigorously running health checks on their operating and reporting systems.

Events have underscored how vital it is that clearly defined operational and reporting procedures are in place.

In many organisations the senior management simply do not have the understanding of the mechanics or the day to day activities of the business which they purport to run.

For example in trading environments it has not been uncommon for totally unrealistic profit targets to be passed from Board level to trading departments.

No cognisance having been given to the disproportionate risks which need to be taken to achieve these targets.

People are only too ready to accept that spectacular profits are being made without bothering to ask the question “how?”

Some of the most spectacular financial flame outs have followed a period of ostensibly highly successful trading.

In their desire to recognise these “profits” no thought were given as to the accuracy and integrity of the reporting. In such times it would be well to remember the old truism that is something looks to be too good it usually is!

Companies that are bucking the trend in these difficult times may well be implementing a winning formula.

However history tells us that it is sometimes a prudent course of action to look under a few stones – just in case.