Lean Manufacturing? Try Lean Accounting

DISCIPLINED cash management can be the difference between survival and collapse for companies facing a recession, warns Clarity Business Financials.

Bournemouth-based Clarity's Managing Director Sue Baker outlines her 'Baker's Dozen' tips to help ensure your business stays afloat in tough times.

Tip 1 - Don't Delegate Your Cashflow Strategy

Delegate your financial work but not your strategy. Stay involved - do not let others take important cashflow policy decisions for you.

Tip 2 - Keep Your Terms Tight

Don't adopt 30-day payment terms just because everyone else does: Revisit your Terms & Conditions. If you say 'my terms are seven days', then they are.

Get it right from the start. Decide your policy and stick to it. Be nice but be firm - you will get respect for it.

Tip 3 - Consider Credit Insurance

Remember that credit checks access only out of date information and that trade references are not really worth the effort. Credit insurance can cost as little as 0.5 per cent of your sales.

Credit insurance forces you to adopt best practice and also makes it easier to ask for money in advance: "My insurer won't cover you - I need you to pay in advance."

Tip 4 - Don't Offer Discounts For Early Payment

Offering discounts sounds like a great idea but it's a lot of hassle. You won't get paid any earlier and your debtors will still claim the discount.

Tip 5 - Maintain Effective Credit Control

You catch more wasps with honey: Build relationships with customers. If they like you, they are more likely to pay you on time.

If they are slow to pay, be friendly but don't stop calling them.

You need a clear escalation policy. Have a strict system and stick to it. If your debtors know you are firm and organised they will pay you first.

Never apologise for demanding payment. It's your money.

Tip 6 - Engage The Sales Team

The sales team should always know the position with regard to credit control.
Involve them emotionally by not paying them their commission until you've been paid.
Tip 7 - Shorten The Cycle

Chart how long it takes from you first incurring costs to finally clearing payment from your customer.

Identify any hidden delays and remove them:
-- Can you shorten your production process? Check your 'just in time' procedures.
-- Do you send out invoices on the first day possible? Don't post them - email them.

Tip 8 - Smooth The Month

Is there a pattern to your months? Are some weeks either feast or famine?

Smooth your cashflow during any given month by changing payment dates.

Ensure you get paid by Direct Debit wherever possible but avoid paying your suppliers by DD so that you stay in control.

Tip 9 - Daily Cash Report

Know your cash position every day.

Don't simply pay first those who shout the loudest. Prioritise your payments:
-- Priority 1 - individuals/one-man bands. Don't mess them around. Their livelihoods are at stake.
-- Priority 2 - critical suppliers. You need these people.
-- Priority 3 - local suppliers. Look after your local firms.
-- Priority 4 - national/international firms.

Never delay paying HM Revenue & Customs.

Tip 10 - Avoid Knee Jerk Reactions

Cut waste by trimming the fat, not the muscle. Do not cut spend that is focused on generating future sales.

Consider outsourcing rather than employing. It may be more expensive initially but you can very, very quickly resize your organisation up or down. This is an essential recession-proofing strategy.

Tip 11 - Accurate Forecasting

Maintain a six- to eight-week rolling forecast. Update it weekly at the very least.
Have early indicators in your sales pipeline to pick up any problems early on.

Tip 12 - Be Aware Of All Options

Overdrafts are not the only way to raise working capital - the banks can call them in at any time. Consider invoice financing or talking to a corporate broker for other options.

Also, directors' loans are an option. You can pay yourself interest at a better rate than the building societies offer if the risk is higher.

Tip 13 - Know Your 12-Month Needs

If you want to be really in control, always have a 12-month view.
If you can see a funding need coming up in six to nine months, start talking to people about it now. It takes time to put in place.

For more information on Clarity Business Financials
Tel: 01202 829922
Email: suebaker@claritybusinessfinancials.co.uk  
Web: www.claritybusinessfinancials.co.uk