Cash Remains King

Recent research carried out by BACS, the body behind the automated banking payment scheme, suggests south west businesses may be facing a real issue with cash flow. Many small and medium sized businesses have debtors running at an unsustainable level.

The national figure for debts owed to SMEs has increased by an alarming £12.6 billion during 2007. The south west has its fair share of debt owed to SMEs which, on average, amounts to £26,000. Although this figure is below the national average, the business managers who responded to the research claimed that their business would face insolvency if unpaid debts amounted to in excess of £20,000. What is more alarming given that statement, is the fact that only 18 per cent of businesses employ someone specifically to deal with credit control.

Credit control remains vitally important. The single biggest cause of business failures is poor cash flow resulting from poor credit control. That is not something which ought to surprise any business person in our region. However, the figures demonstrated by the BACS research suggest that the importance of controlling debtors is not being taken seriously.

One reason for the lack of importance placed on credit control may be the apparent willingness of funders to make cash readily available in recent years. Businesses with underlying cash flow issues have been able to access increased lending facilities relatively easily, provided of course that the business is fundamentally sound. However, the tide is turning.

We are experiencing a change in lending policy, certainly within the major lenders, as a result of the now familiar term “credit crunch”. It is now clear that as a result of the credit crunch businesses in the south west are facing problems with cash flow.

Is there a solution which will unlock this apparent cash flow issue? Unfortunately there is no easy answer. However, all business managers should consider the following action points:

• Take a considered look at your aged debtors report and review the level of debtors your business is running;
• Target particularly delinquent accounts or those with ongoing issues;
• Review the companies’ terms of business and the remedies they allow in the event of non payment or dispute;
• Consider employing a dedicated credit controller, even on a part time basis in order to keep debtor levels under control;
• Review credit control procedures: Are they effective? Are they reasonable?  Are they legal? Are they cost effective?

If more fundamental issues are suspected, or guidance is required, speak to professional advisors. The benefit to your business of obtaining professional advice as early as possible ought to far outweigh the cost. If you currently instruct credit control or debt collection agents, consider whether their procedures offer the best value for money. Often, the cheapest up front cost does not provide the best overall return.

As the credit crunch starts to bite SMEs in the south west, we must carefully consider how a lack of cash really affects our businesses. To be caught napping will be fatal in the current climate. Despite the availability of credit facilities in recent years, it is now becoming clear that cash remains King and those of us with sound credit control procedures will be best placed to deal with the fallout from the credit crunch.

Here at Foot Anstey, we have a dedicated debt team who will be happy to advise on all debt related matters. Whether you are looking for a fixed price service, a more bespoke offering or perhaps just a review of current internal procedures, we can help.

Published 30/01/2008.