A Major Factor In Improving Cash Flow

24/4/09

The adage that “it’s not a sale until the money is in the bank” is truer now than it has ever been, which Yorkshire Bank in Coventry attributes to a growing interest in its factoring, invoice and asset finance, and bad debt protection services.

In a challenging economic climate, many businesses looking to improve their cash flow are struggling to do so as customers, in the same boat, stall on paying their bills. At the same time an eagerness to secure new sales can result in a failure to undertake all-important credit checks, leaving businesses exposed to poor payments or, worse still, bad debts.

Yorkshire Bank’s Financial Solutions Centre at the Ricoh Arena offers a range of facilities that can improve cash flow and also offer protection. Invoice discounting, for example, can dramatically improve a company’s cash flow by releasing money as soon as an order is completed and an invoice raised, rather than having to wait for its customer to pay.

Andy McCabe, senior partner at Yorkshire Bank’s Financial Solutions Centre at the Ricoh Arena, said: “Many businesses are finding that customer stalling on invoices is becoming increasingly commonplace.

“We are seeing increased demand for our invoice discounting facilities, whereby we take over responsibility for pursuing the invoice in exchange for a percentage of the invoice’s value. We then release the remainder of the cash, there and then, to the business, allowing them to redeploy it where it is needed most.”

The trend is backed up by recent figures from the Asset Based Finance Association, which show that during 2008 sales invoices worth £2 billion were processed via invoice discounting and factoring, a growth of nine per cent on the previous year.

Protection from bad debts is another area that has seen an upturn in interest, according to McCabe.

He said: “Increasingly sitting alongside a company’s invoice finance agreement is bad debt protection, which gives peace of mind over the possible impact of bad debt resulting from a customer’s formal insolvency.”

Top Ten Tips to Tackle Cash flow

As well as always checking out a new customer's creditworthiness before beginning to trade with them, Yorkshire Bank recommends that all companies should:

1. Undertake regular credit checks on its customer base.
2. Set clear credit limits when they begin trading and stick to them.
3. Prepare clear and unambiguous written contracts and/or terms and conditions of trading, notifying customers of any interest payable on late payment.
4. Make sure they know - and comply - with procedures used by your customers’ buying and accounts departments.
5. Maintain close day-to-day contact with their customers.
6. Ensure that delivery notes and invoices are 100 per cent accurate to avoid queries and the need to re-invoice.
7. Put a ‘Stop’ on customers who are not paying.
8. Send regular statements and payment reminders.
9. If a customer is unable pay, it may well be of mutual interest to negotiate a settlement - perhaps introducing a payment plan.
10. And, if all else fails, legal action may be unavoidable.