Cash is king in these credit crunched times. Lack of it will starve a business to death. So how does a company ensure that it still has some money to hand when orders are drying up and customers refuse to pay promptly?
Ben Fletcher, director of Osney Media, the conference business, claims that one of the best things he has done to improve his cash flow is to get a cashback credit card.
His business spends about £60,000 a month on marketing and venues, generating as much as £1,800 merely by paying for everything with the plastic.
The trick is to pay the card balance off in full and quickly, he explains. “You might only get a £30,000 credit limit, but as soon as you have spent that amount you can pay it off and start all over again.”
The extra funds are a welcome respite for Osney Media at the moment. The company’s business model is based on sponsors paying months in advance of a conference being held, but many have been dragging their feet. “They are saying, it is a November event so talk to us again in May or June,” Fletcher explains.
Events organisers are often the first to feel a tightening in corporate spending so, after 13 years in business, Fletcher has become experienced in getting cash into a company.
He claims the sales decline is not yet as bad as the one Osney Media experienced in 2003 after the internet bubble burst and the 2001 terrorist attacks on the US. However, he also admits that this downturn appears only to have just begun.
Part of managing cash flow has been reviewing all of the company’s costs, discussing ways of reducing bills with suppliers and organising competitive tenders for some items. Fletcher says: “I was kicking myself to see I could have saved this money years ago. People seem happy to renegotiate.”
Another key way to save money is to be smarter about how you pay your customers. Osney Media has no debt, but it does try to do deals with its creditors where possible and sometimes sends post-dated cheques. “At the moment people are just happy if they have got the money,” Fletcher says.
He also makes a point of seeking better terms when signing up with suppliers. In desperate times, it is surprising how many companies will agree to this, he notes.
The flipside of better cash flow is to get customers to pay up quicker. Humour is always better than aggression when trying to convince customers to settle bills, according to Paul Rolison, managing director of Yellowspring, the IT support business.
It is one of the reasons he claims that out of about 200 clients, he has had just one bad debt this year.
“Threats just anger those with the chequebook,” he says, adding that you need to get close to your customers if you want to get their cash.
Rolison boasts that his credit controller knows all his customers’ habits – there was one, for example, who often called in sick on the day of the week he sent the cheques.
“We have different types of invoicing for different types of collection regime,” he says. “I would like to think we are at the top of most people’s paying list because of the relationship we have developed with those that make the payments.”
Credit checking potential customers has become more popular in recent months and many companies offer this as a service.
Ray Murphy, managing director of Intersped, the Dartford-based logistics business, bypasses these third parties by using the Companies House website. This not only saves money for the business, but can be a more effective way of screening customers, he claims.
Murphy notes that in the past five years, when the business has turned over close to £10m, it has lost only £10,000 to bad debt. “We must be doing something right,” he says.
Murphy also believes that he has been helped by spreading his revenues over a large number of customers.
Intersped, which specialises in moving items between the UK and Greece, has more than 100 customers, mostly small operations.
“Our biggest debt is £50,000,” Murphy says. “Although it would really hurt us if that company went bust, it won’t kill us.”
Some customers have already come to Intersped asking to reschedule repayments, but Murphy says that these have only been for a few thousand pounds each time, so the business has been able to cope with it.
Not that Murphy believes in a softly-softly approach to late payers. He employs a solicitor to send a stern letter to customers as soon as they miss a deadline. “We used to send letters to clients on our own letterhead, but they were a complete waste of time,” he explains.
Even debt collection can be done more efficiently, however. Instead of keeping a solicitor on a retainer, Murphy has found a Liverpool practice that only charges him £2 each time he needs to send a late payment letter. He can even order the letters online and claims that the day after the letter is sent, a cheque is normally in the post to settle the bill. “It works 99 times out of 100,” Murphy says.
Prevention is always better than cure, according to Murphy. He says Intersped could take on more large contracts, but it would double the company’s risk exposure.
“Quite frankly, I probably won’t make that much more money but I would have got the risk of not getting the money in.”
