In the event of periods of disruption beyond a businesses control, such as postal strikes, holiday seasons; especially the summer and Christmas, it is suggested that businesses take steps to ensure that the cash keeps coming in.
Cash flow rules for christmas
- The Christmas holiday makes December a difficult month for debt collection and many businesses will need to step up their credit management procedures and take early action if they want to avoid late payment of invoices over this period. A little forward planning by businesses can go a long way to ensure that, as far as cash flow is concerned, they start the New Year on the right foot. To help enjoy a happy Christmas, having been paid on time and settled all their own outstanding debts, businesses should take the following steps:
- Be aware that without forward planning the Christmas close-down period could delay payment to your firm substantially if your customer has strict payment cycles.
- Ensure that you are aware of your major customers' Christmas opening hours to avoid wasting time when chasing payments.
- Do not let credit limits get out of hand because of extended payment times over the December and January period.
- Do not get behind with your own invoice and statement schedules over the Christmas period.
- New customers seeking large credit facilities over the Christmas period may be hunting for credit from unsuspecting (and busy) suppliers.
- Plan and budget your own expenditure over this period because, inevitably, payment terms can be disrupted over December and early January.
- If payments from customers are due during close-down periods, attempt to negotiate earlier payment dates.
- Take action on those accounts that are beyond credit limits now. Do not wait until the New Year when your debtors will have other pressures.
- Use the quiet, close-down period to review your terms and conditions, ensuring that they are up to date and that they include reference to interest terms;
- Keeping to the above rules will ensure a Happy Cash Flow Christmas!
Long term strategy for periods of disruption
- It's easy to use periods of disruption as an excuse to ignore or delay the payment of invoices, but by thinking ahead, firms can take action as part of their longer-term strategy to minimise the likelihood of customers using these as reasons for late payment.
- Advise customers that you wish to be paid directly into your bank account. You can do this in advance by letter or during a strike by e-mail, by providing your bank account details and giving each customer a reference number so you can identify their payment on your statements.
- Ask customers who regularly place orders to set up a standing order with their bank to pay you a specified amount each month to cover goods purchased.
- Consider offering an incentive to firms that agree to pay by direct debit, perhaps a one off bonus, or a discount, but be careful to cost any discount or bonus offered.
- Ask your bank for paying in books on your account and give them to customers so that they can pay their invoices at their bank. Remember, you can fax or email invoices to the customer instead of posting them, and always provide a reference number to help reconcile statements.
- Personal visits to customers located near you to deliver invoices and collect payment can also work well. There is no need to antagonise the customer by arriving unannounced and asking to be paid. All it takes is a quick phone call to explain the situation and to agree the method of payment. If cash payment is involved, a proper receipt must be provided for security reasons and to ensure no misunderstandings occur.
- If you need to use a courier company to visit customers to collect payments, it may be wise to set up such a facility now, as in the event of postal disruption, you may find these companies are swamped with enquiries and you may be left disappointed.
Consider if a different approach is needed for large customers with high value orders as opposed to smaller customers who regularly order small amounts of goods.