John Scott, General Manager of credit and collections firm, Dun & Bradstreet, offers the following advice for SMEs in the lead up to Christmas.
KEY POINTS:
The festive period is a busy time of year, particularly for SMEs. It often involves a mad rush as executives try to tie up loose ends and ensure that the business begins the New Year in the best possible position.
* Take the time
to review the business and plan for the New Year: 2009 looks set to be a challenging year. To ensure that your business is prepared it is important that you take the time to review your operations and develop the plans that you need to execute on in 2009.
If you take the time to prepare now you will reap the rewards in the New Year.
* Be realistic about what you can achieve: It is important that you understand your strengths and develop ways to highlight and exploit them.
It is also important that you understand your weaknesses and develop ways to address or overcome them.
* Identifying your competitors' strengths and weaknesses and knowing how your offering compares to their product or service is another "must do" exercise. This is important at every stage of the business lifecycle.
* Ensure you manage your cashflow effectively: Cash is king, particularly now with the world in the midst of a global liquidity crisis.
Without a strong cashflow a business cannot survive and prosper. One of the biggest strains on business cashflow is late paying customers.
Managing late payers can be difficult, particularly for SMEs, but it is important to remember that you deserve to be paid on time no matter who your customers are. The best way to address this issue is to ensure you have an effective and efficient accounts receivable process in place - this means you must:
- establish clear credit terms at the outset of a relationship
- issue invoices promptly
- track your accounts receivable to identify slow-paying customers
- communicate with you clients regularly to identify and resolve problems before invoices become overdue
- take action against a debtor if they are persistently delinquent.
- Prevent bad payers by checking a customer's history before you extend credit: The credit checking process must be undertaken for every customer. Many executives assume that size correlates with payment behaviour and that big businesses will be good payers. This is not necessarily the case and it means that a credit check must be conducted at the outset of every relationship. It also means that you may need to turn business away - it's better to turn down a sale than take on a client who drains resources through bad payment behaviour.
You should also use this as an opportunity to check your current customers as there may be bad payers among them. If you are aware of poor payment behaviours you can organise for upfront cash payments to ensure you get the cash you deserve on time.
* Review your supplier base: Are you confident that you are getting the best deal from your suppliers? Do you know whether any of your suppliers are related through corporate family trees? If the answer to these questions is no, you need to take the time to investigate your supplier base. Understanding corporate family connections will allow you to negotiate better rates due to the proportion of spend within a group.
It is also important to examine your suppliers from a risk perspective. Are any of your suppliers showing signs of financial distress? Would the collapse of a supplier cause significant issues for your business? If you answered yes to these questions you need to start investigating your suppliers straight away. Don't be afraid to seek outside help - this is a big task. A credit reporting agency will be able to assist you in undertaking this due diligence.
* Check your business credit file: The current global credit crisis has forced credit providers to rein in their lending and accordingly, they will only provide funds to organisations with an exceptional financial record.
Therefore it is critically important that you understand what information lenders use to assess your financial health and that you ensure the information on your file is as up to date as possible.
* Be prepared: The unexpected always occurs at the worst possible time. By establishing a nest egg you are helping to ensure that you can get your business through a potential rough patch. Be sure to regularly review your nest egg to ensure it's in tune with your ongoing needs.
Following these simple steps will ensure that your business is fit for the New Year.
