You Are Not A Bank
As a small business, credit control can be a nightmare. Paul will tell you that when he first started running his traditional accountancy practice (Paul Donno & Co) he was pulling his hair out when he would do work, invoice the client and then not get paid. Unlike buying a product, paying for a service seems to have less urgency when it comes to paying. It used to take Paul on average just over 90 days for collection on 10 day accounts.
There is a group we belong to called the 2020 Group. One of the founders, a guy called Gordon Gilcrest spent some time with Paul to help his overcome this problem, he sat him down and said to him:
“Paul, you are not a bank. If people want a loan, they can go to the bank and they can pay interest on it. You are not a bank; you have credit terms, stick to the credit terms. If you give 14 days’ credit that gives them the right to pay within 14 days, not over days and pay you 50-60 days later”
This advice has stuck with Paul, and he re-evaluated his approach as a result. He spoke to the clients who were taking a long time to pay and advised them that they needed to change their ways. He also parted ways with a couple of companies.
When starting 1 Accounts Paul did not want these problems again. We set up Go cardless and have automatic direct debits taken every month. The direct debit is automatically set up when the proposal is signed. This saves time, money and chasing.
Here is our advice to you if you are struggling with credit control:
Look at your trading terms and ask yourself why you are offering credit, and if you do offer credit, want are your terms? Work out on average how quickly your customers are paying.
If you are lending money long term, that is for banks to do and not you!
Look at all types of money collection and do not put barriers in the way. Take credit cards, offer direct debit, provide alternative funding to customers
Remember ‘Turnover for vanity, profit for sanity but cash is reality’
It is no good tying up your money in stock that takes ages to turn over, measure stock turnover and don’t lock up your cash.
Don’t give extended credit, and if you do chase it hard, you have already paid for the goods sold or staff to provide services.
Without cash, you cannot make rational business decisions to move forwards.