Webinar | Cash is King – The life cycle of debt

The lifeblood of any business is cash flow and should the cash flow reduce or fail completely then your business cannot continue to trade regardless of the sales achieved. There is little point in trading unless you are being paid for the work undertaken.

Obtaining payment and increasing cash flow into your business starts from the moment a sale is agreed. Do you or your salespeople appreciate the importance of understanding the legal identity of your customer and confirming who is signing the agreement or placing an order? Do your sales team seek a personal guarantee from a director? Without this type of basic information and safeguards in place, obtaining payment for services properly rendered is made that much harder.

Once an invoice has been raised it is imperative that you hold and implement an effective credit control procedure. There is no right or wrong when it comes to a procedure and the basic rule of thumb is whatever works for your business to allow a balance between customer service and the required cash flow.

If, despite pursuing a credit control procedure payment is not made then legal proceedings can be commenced. By this time you should be aware of the likelihood of your customer having the ability to pay (i.e. information obtained at the point of sale or subsequently). Issuing legal proceedings is not cheap and therefore the investment should only be made in the right cases where there is a good chance of payment being received. When it comes to issuing a claim you should also consider if you have a contractual ability to claim interest and legal costs. If not then, for the correct customer, you will be able to add statutory interest and compensation pursuant to the Late Payment of Commercial Debts (Interest) Act 1998 at the rate of 8% above the Bank of England base rate. With the base rate being relatively high at the moment this may allow you to claim a substantial sum in interest alone, let alone the fixed amount of compensation for each invoice. If a claim is ignored then judgment can be obtained and enforcement action undertaken to attempt to recover the outstanding sums, such as instructing bailiffs to attend the customer’s property.

Without cash flow, you won’t have a business so getting the basics right is vitally important.

Hear straight from our expert Paul Abdey through his latest webinar in partnership with the KICC Business Bites series:

This content is correct at time of publication