8 simple steps to improve cashflow

Up to one in four businesses will become insolvent in the next twelve months, says Tim Bishop, as the direct result of late payment of invoices.

Recent research has found that small firms are in the most danger, but no business, whether small or big, should underestimate the importance of credit control, particularly in light of today's global financial situation. Here are some suggestions to help you tighten your credit control and improve your cash flow.

1. Make your terms clear. Agree payment terms at the order stage and have those terms printed on relevant documents such as invoices. Terms should include any credit period and details of interest charges on overdue accounts. Don't forget all businesses have a legal right to claim interest from late paying customers.

2. Credit checks. Think about having credit checks performed on large prospective customers. An online credit rating can be on your desk in minutes. Consider taking up credit references.

3. Make your invoice clear. A straightforward invoice that is easy to understand will encourage faster payment from customers - don't forget to include a detailed description of the goods, a reference to the order number and the agreed payment date.

4. Chase outstanding bills ASAP. This is perhaps the most important tip of all. Always concentrate on the largest debts first, customers you guess may be in financial trouble, and older accounts. Keep a log of all your calls - day, time, the name of the person you spoke to, and what you spoke about. Do not be embarrassed about requesting payment - never forget it is your money. Phoning is one of the fastest ways to persuade late payers to pay up, but never call on Monday or Friday.

5. Deal with excuses. Always be skeptical of excuses - they are often tactics employed to buy time. Put these customers high on your chasing list. Have a standard policy on dealing with common excuses such as:

- "I haven't received your invoice". Check the invoice address is correct and immediately e-mail another copy to the person you spoke to and phone to check it has been received and when you can expect payment

- "I'll deal with it shortly". Ask when.

- "The cheque's in the post". Ask for the postal date and cheque number

6. Send 7 day letters. A 7-day letter is the first stage of taking legal action - you cannot sue unless you have sent that person such a letter. You will find that there are some businesses who make it company policy not to pay their invoices until they have received a 7-day letter. Consider appointing a specialist debt recovery solicitor to send 7-day letters on your behalf. Receiving a solicitor's letter often provokes a strong reaction and can therefore lead to a significant improvement in results.

7. It's good to talk. Maintain a positive and personal relationship with your customers. You are more likely to get the results you want if you adopt a friendly approach.
Explain that you value their business and have been advised to take legal action but only want to do so if there is no alternative. Speak to the managing director or finance director of the business, or another decision maker if possible.


8. Express thanks. Thank customers who are prompt with their payment.

Whatever you do, don't delay. Deal with unpaid bills as soon as possible. Also make sure you have a written credit control system in place and that you use it. If customers continue in failing to pay invoices, contact an experienced debt recovery solicitor to help you recover your money.

Bonallack & Bishop (http://www.bishopslaw.co.uk ) are a Wiltshire, Hampshire and Dorset law firm with solicitors specialised in Debt Recovery. Tim Bishop is the senior partner at the firm, responsible for all the major and strategic decisions. He has a particular interest in marketing and has expanded the firm by 1000% in the last 12 years.