Getting paid

Forget your invoice terms, on average an SME will pay your bills in 60 days.  A large company is usually far worse, taking an average of 80 days to pay your bills.  If your invoice terms are 30 days that's 50 days extra credit.  Good for the large company cashflow, but terrible for yours.

Cashflow is the oxygen in which the small business breathes.  It's therefore vital that small businesses invest time in credit control.  Late payment and bad debts can and do kill otherwise good small businesses.

The source information comes from a survey of over 366,000 UK small businesses by Experian the credit reference agency.

Philip Woodgate

Technorati Tags: small business  medium sized business  sme  smb  blogging accountants

Comments

[dahowlett]

It struck me that with online services like Equifax - why don't more businesses take advantage to do simple credit checking? Maybe Equifax could be encouraged to put up a small business service available over the wire that could be incorporated into your online presence. Maybe a logo or something that signifies your good credit standing? Hey - I feel a blog post coming on!

[Philip Woodgate]

Sounds like a good idea to me. They would need a link back to the genuine site, perhaps something like Technorati were you can see the blogs ranking. Instead you could see statistics on the company’s credit rating. The good payers would sign up and the bad ones would stay clear. The information would be a comfort to the SME and best of all it would be free. The potential trickle down impact of reducing payment days would be a massive help to start ups; as we know it’s all about cash for them not paper profits.

Oh, by the way - thanks for the mention today in your article.

[Dennis Howlett]

What a brilliant idea. Must od an addendum to my post

[Ted]

Cash flow is the blood of your business. I have seen quite a few businesses that we deal with get strangled with cash flow problems to almost the brink of bankruptcy (which I'm sure causes quite a few cases each year).

It tough for a small business to make the corect credit choices when they are looking for sales. I think they look at more of the sale end of it versus if they are going to get paid after the sale.

[Gregg Jones]

Please excuse me just pasting some thoughts from our own blog, but thought it was relevant.

Outsourcing! Much has been written and talked about the subject. Strange, for a term that was hardly heard of just ten years ago.

The word can often conjure up thoughts of overseas call centres full of well meaning, well educated enthusiastic people proudly representing an organisation based thousands of miles away.
Similarly, it could represent memories of holding ages on the telephone, language barriers, cheap wages and complete frustration.
The general view is that outsourcing is specifically for Blue Chip organisations, especially utility firms.

That may have been the case in the past, and whilst it is believed that over half the companies listed on the FTSE utilise outsourcing, it is becoming increasingly popular with many SME’s.
Apparently many small firms still think they are too small to outsource. They don’t believe there are companies that are interested in their business. Not so. As a small or medium sized business you are a highly prized asset to many firms offering their services.
In truth, most SME’s are looking to expand and outsourcing can offer them access to higher quality resources. In specialised areas like IT and Finance, SME’s can find a better quality resource offshore. In many cases this can be achieved at a fraction of the cost.

One area many SME’s achieve real benefits from is outsourcing credit control. Let’s face it, what small company doest want/need better cash-flow.
This should be undertaken in the same country as there is little doubt that having a language barrier, perceived or otherwise can be perilous in the area of cash receivables. This is definitely an area SME’s can ill afford to take risks with.

The good news is there are a number of agencies who specialise in professional commercial credit control.
Often, these agencies will contact debtors in the name of their client and this will usually be more effective and professional than if done internally. Another key benefit for SME’s is that this will often be done at a much lower cost of operating in-house and relieves the hidden costs of sick days, tax contributions and management.

Considering cash-flow is the number one reason SME’s fail, outsourcing this area to a specialist organisation would seem a smart move.

Management guru, Tom Peters, hit the nail on the head when he said “Do what you do best and outsource the rest.”

[Philip Woodgate]

Mmm, almost an ad, but some good points so Greg I'll let your one pass.

I'm not entirely convinced outsourcing always works, but credit control and cashflow is very important. I can definitely think of some businesses I know where it works well for them. On the other hand with the very small (micro) SME's it can be overkill.