The Octempo:RM Blog

Bank lending to small businesses in June was over a third lower than in the previous year, despite the British Bankers’ Association (BBA) claiming that its members were making loans of around £27m to small businesses every day. Total loan value in June 2010 was £598m but this is a 31% drop on last year when loans for the same month reached £867m.

We are past the halfway point of 2010 and so far monthly average for lending to small businesses is around half the amount banks lent two years ago. 

So, forget the spin that the state owned banks want us to believe. The real story is the trend that shows lending is going down and considerably decreasing. Fortunately it appears that Vince Cable is at least on top of this, having warned bankers that their bonuses could be linked to lending - a statement likely to get their attention.  

It's unlikely to change in the short term though and, as always, there is a solution easily at hand - get your customers to pay your invoices on time.

Sounds simple but newly released Business Link data shows that nearly half of UK small and medium sized businesses have no efficient system in place to chase unpaid invoices. Efficiency is one thing but effectiveness is more fundamental. Many businesses use very traditional credit control processes with a lot of manual correspondence and little use of the phone.

If you fail to be pro-active in chasing up your invoices then you will get what you wish for. A lot of credit controllers I've come across are actually afraid of using the phone, largely because they only chase invoices after they are overdue so every phone conversation is negative and defensive. It doesn't need to be this way. Pro-active credit control and invoice chasing is really just good customer services and handled properly can boost the professional reputation for your company.

Next time you're looking at your cash flow and bank balance, take a look at how long your debtors take to pay before you pick up the phone to the bank. 

We all love our customers, but some demand a disproportionate amount of our time when it comes to getting paid. All businesses have them: they are well meaning but disorganised; great business partners but just awful at paperwork. And if you're not careful they divert your credit control resources away from good paying customers and before you know it you've got credit control challenges everywhere.

If this has happened to your business, or is about to happen, follow these simple steps to avoid it hammering your cash flow:

1. Take a look at your customer list and the average days they take to pay. If you're not sure how to do this take the month end debtor balance, divide it by the annual turnover of that customer and then multiply by 365 days. This will give you a rough measure of the number of days an invoice from your business remains unpaid
2. Compare this list to the standard terms you give your customers. Surprised? Most companies are and that's why it's a useful activity
3. Of those customers who pay late, try and estimate how much time you spend chasing invoices each month. Then do the same for the good payers. Big difference isn't it

Chances are that your good payers will also start to take longer to pay as you divert more credit control resources to the slow payers and away from the good payers. Remember, many businesses don't pay invoices until they are chased for them, on the basis that 'if you don't chase you don't need the money'. I'm not suggesting this is good practice but it is often the reality.

So, you've done the analysis and identified the problem, but what's the solution? You either take it on the chin and suffer, or do something about it. If you want to do it yourself internally then you will probably need to hire more people, but is this the most cost effective solution. A better idea would be to pass these customers out to a third party to manage - you pay for what you use, get access to their software and efficiencies, and allow your staff to focus their energies on strengthening the relationships with your good payers. The third party, either working in your name or theirs, can then work on improving the payment behaviours of your consistent late payers.

There you have it - how to avoid 20% of your customers consuming 80% of your credit control resources, and boost cash flow.

One of the great aspects of the Christmas break is it allows time to spend with family, to switch off from the pressures of day to day business and reflect on the passing year. Most of us will look to the New Year with optimism and a sense of hope and, in the run up to a general election, our politicians currently holding power will encourage this feel good mood. There will be many upbeat phrases deployed over the coming weeks - 'emerging from recession'; 'the worst is over'; 'economy starts to pick up' - but a cautious optimism is by far the safer route.   

A word of caution though. Whilst we may well be seeing the start of the end of the recession no business should neglect cash flow or credit control. The dead cat bounce - when a cat falls from a tall building, dies on impact with the ground but bounces up and gives the appearance of still being alive - is the perfect analogy of those commentators predicting the start of economic recovery. 

We still have a huge deficit to deal with and, like it or not, it will need to get repaid. This will mean increased taxes and cuts in public spending. Insolvency body R3 has warned that the next few months could be the most dangerous time for businesses. Matt Dunham, North West regional chairman of R3 and a partner at Grant Thornton, said: “Once the recession ends, there is a delay before businesses start to feel a sense of relief.” R3 estimates the number of corporate insolvencies will reach 26,675 in 2010, with March being the worst month.

However, there are actions all businesses can take to protect themselves from defaulting debtors:

1) Credit policy and trading terms - establish, communicate and enforce

2) Credit checking - new customers. Existing critical customers. Make sure you understand the information you receive

3) Pro-active credit control - regular scheduled contact early in the cycle after invoice issue. Allocate specific resources and incentivise against cash collection targets. Keep close to your customer

4) Invoice queries - deal with them quickly and professionally and analyse what causes them. Go and fix the cause rather than always dealing with the effect 

5) Good housekeeping - make sure your data is always up to date - contact details, payments received and correspondence

6) Always do what you say - threatening to escalate a debt and then doing nothing wastes your time, makes you look a chump and worsens the likelihood of forcing a debtor to pay  

In today’s market place having a unique identity is more important than ever. Our services and solutions are unique, but our old name wasn’t. That’s why we’ve taken the decision to rebrand ourselves as Octempo:RM. Email addresses follow the same format but now end in @Octempo.com, the web address is www.Octempo.com and all other contact details remain the same. 

If you have any questions please contact me via the blog or through http://www.octempo.com/About.aspx .

After the success in Manchester we have taken SME Connect on the road to Warrington. I would like to extend a personal invitation for all readers of my blog to attend an SME Connect business seminar on Wednesday 7^th October, 2009 at Warrington Business School, Winwick Road, Warrington at 2.00pm. The current recession, whether ‘V’ or ‘W’ shaped, will come to an end. The seminar theme is around coming out of recession, preparing for growth and managing the associated risks. 

The seminar, sponsored by RBS and Forshaws Davies Ridgeway LLP, will be presented by North West based experts from a number of key business areas, giving practical tips and guidance on the following topics:

Banks like lending money

Stuart Finnerty, Commercial Manager at Royal Bank of Scotland Group

www.rbs.co.uk

The secret to using marketing to help generate ACTION!

Stephen Nurdin, Head of Marketing at Kinesis

www.kinesismarketing.co.uk

 Recruitment risk and managing performance

Paul Halliwell, Commercial Manager at the Urquhart Partnership

www.upwebsite.com

Employment policy compliance and process

Sarah Evans, Senior Commercial Litigator at Forshaws Davies Ridgway LLP

www.fdrlaw.co.uk

Closing the sale

Brian Ashley, Director and Founder at Achieve Sales

www.achievesales.net

Turning effort and activity into cash

Julian Llewellyn, Managing Director and Co-Founder of Octempo:RM

www.Octempo.com

The usual cost is £75 per delegate. Attendees are restricted to Directors/Owners of SMEs employing a minimum of 5 people and an annual turnover of £1m+ (or looking at rapid growth), to ensure attendees get the most benefit from the event.  Space is limited and places will be allocated on a first come first served basis. Your place can be reserved by registering online at www.sme-connect.co.uk, picking the 7^th October event and entering the special booking code WBSO 12.

If you are unable to attend the 7^th October event we are also hosting two further seminars, on 24^th November (booking code WBSN 17) and 10^th February (WBSF 23). Venue and timings remain the same.

Complimentary refreshments will be served. Please arrive at 2.00pm for a 2.30pm prompt start. The event will finish with informal networking and a scheduled close of 6.00pm. I hope you will be able to make it.

Best regards,

Julian

The latest research released by Ipsos MORI, sponsored by RBS, asked a simple question of 250 SME leaders:

"What actions, if any, are you planning to take in the next few months to improve/alleviate your cash flow position?"

Surprisingly the most common answer of all (29%) was that there were no planned actions, even among those who had reported a deterioration in their cash flow situation over the previous months.

The obvious question is why? By far the most effective method of improving cash flow is through pro-active debt chasing, early in the cycle from invoice issue. The same survey also found that 80% of respondents thought active invoice chasing to be very useful, and 56% felt that running credit checks on all customers to be a valuable exercise. 

Given that such activities are proven to improve cash flow and reduce the risk of bad debt, the only conclusion to draw is that businesses are hampered from completing these tasks by a lack of resources. Many businesses perhaps do not have the necessary skills in house to deliver these improvements.

In smaller companies many roles are hybrid in nature and credit control often falls to the bottom of the pile of 'things to do'. In the current economic climate this a reckless approach. Even where an SME has a dedicated resource allocated to credit control, this becomes a single point of failure - what happens if they are off sick for a period?

One solution is to outsource the activity to a specialist. Not only will this save you money, it will also reduce your bad debt risk and improve your cash flow. You can get access to a £45k Credit Manager or a £20k collector on a 'pay as you use' basis, and you never need worry about sickness or holiday cover.    

If this sounds to good to be true I'm delighted to tell you that it isn't. At Octempo:RM we have been providing precisely this service to SME's for the last two years. So, other companies are doing it and getting an advantage over their competition in the battle for their customers' cash. Isn't it time you considered doing the same?