Well the government seems to be gearing up for an announcement that recession is over – that is when official statistics record that GDP is in positive territory – but we are a long way from getting back to normal – whatever the ‘new normal’ may be.
On the bright side, the Bank’s bad run seems to be over and they are lending again to businesses with well thought out plans, thank goodness; but business and personal insolvencies have risen significantly over the past year- for most it’s been jolly hard work to stay afloat.
Bad news normally continues for some time after formal announcements that the worst is over – there are many reasons, notably the reluctance of businesses and individuals to get themselves back into the mess that they found themselves in a year ago!
It is forecasted that 1 in 50 businesses will fail next year because of poor cash management. Entrepreneurs are excellent in bringing new products and ideas to the market, but they often have serious gaps in managing their investment in the business.
Here are a couple of facts that might make the entrepreneur think -
• In most small and medium sized businesses, 40% of net assets are tied up in unpaid invoices – as the owner of the business you might have thought that you were in charge of managing the companies most valuable asset – but that invariably is delegated to somebody in the accounts department.
• Now this may be a surprise, if you make a margin of 5% on sales and you have to write off £1000 bad debt, you will need to make another £20,000 of sales to cover the loss – and everybody in the business will have to work harder just to stand still.
Businesses will have been blind not to notice that everybody is taking longer to pay and for most the 30 day payment limit will have slipped gradually to a massive 60 to 70 days with the result that more working capital is needed to finance the business. Maybe not a problem if you have a well established business with a long track record of profits, but if not, you may find that the bank less reluctant to assist in quite the way they did a few years ago.
So this might be the time to take a critical look at the management of your cash and going back to basics - knowing more about your new customers, agreeing payment terms before supplying goods, invoicing promptly after goods are dispatched and asking for payment when it is due - after all it’s your money!
If you are struggling to collect overdue invoices and you would like some practical advice on improving the efficiency of your cash management speak to Jeremy Priestley at P&A Receivables without delay on 0114 275 5033.
Jeremy Priestley
Managing Director of P&A Receivables Services plc.
There is more information at www.pandareceivables.com
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