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Working with your cash-flow

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In today's challenging market conditions, it is imperative that businesses manage their cash-flow as efficiently as possible. As as small business you can adopt a number of procedures that should enable you to improve your cash-flow. Read on to find out how. Terms and conditions You should agree terms and conditions with your customers beforehand to protect your rights, limit your liabilities and provide security in the transaction. These terms should be stated clearly on all relevant documentation. You should also be aware of who the contracting party is so you know who to contact if there are any problems with the order or any delays in payment. Don't rely on a single customer You should, if possible, avoid over reliance on one customer. It is advisable to have a number of income sources to minimise the detrimental effects if one customer encounters financial difficulties. Understanding your rights Each business has a statutory right to charge interest on late payments. This is calculated using a reference rate, which is based on the Bank of England base rate. Offer incentives for prompt payments Your business could offer early settlement discounts to customers to encourage early or prompt payment of an invoice. This would reward your good customers. Customer vetting It is important to run credit checks on all new customers and run them regularly on existing customers. This will identify any changes in their financial situation. It is also advisable to credit check your own business to ensure that the information held is correct. You should also monitor your customers for daily changes in key business data. Internal documentation Your business should send out sales invoices to customers promptly. This avoids any confusion with the goods or services which have been supplied. It is important to keep on top of your records to ensure that you are aware of any outstanding debts as soon as possible. Communication Your business should build good relationships with customers and suppliers from the offset. This makes the process of collection easier and makes it more likely for suppliers to offer favourable terms or renegotiate existing terms. You need to make sure that you are as high up the list as possible when your customers come to pay their debts. Marketing If your business has an existing marketing plan, then this should be monitored to ensure it is effective. If you have not got a plan in place, you should consider developing one. This should also be communicated to all appropriate staff to ensure everyone is focused on the aims. Review your costs It is always important to review your existing costs. There is usually always scope to cut your costs. There are cost consultants who specialise in this area and these often can achieve best returns. About the author This article was written by our partners at wk5.com who offer a range of support services for businesses, including credit reference reports, business status monitoring, debt collection, cash flow advice and many more. All of these services are currently offered to members of the FPB at discounted prices. Click here for more information, call 08450 262 555 or email support@wk5.com.

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