Our Archive

Following on from George’s previous blog post we bring you the final in this two part series:

——————–

Whilst all good finance departments should have a pro-active credit control process, the responsibility for good cash management should extend to other areas of the business.

1. Avoiding Customer Disappointment:  Customer dissatisfaction of the product or service provided accounts for up to 70 per cent of all delayed payments.  Overselling and under-delivering will not only impact your immediate cash flow, it will also affect your ability for repeat business.  Overselling can be over-emphasising your product’s characteristics, but equally by not delivering on time and in full.  To avoid customer disappointment, you should ensure your sales team have the correct knowledge of your products.  Your sales team should know the lead times for production and shipping or have access to this information whilst out of the office.

2. Integrating Sales and Invoicing Processes:  Your sales team should be in regular contact with customers.  This provides an excellent opportunity to discuss any overdue invoices and the reason for delays in payment before new orders are accepted.  The sales team should always have up to date financial and operational information available before meeting with a customer.  This can include current debts, past payment history, current outstanding orders, and expected delivery dates, delays to deliveries, shipping schedules, current price lists and lead times.  Mobile software solutions are available which can provide live financial and operating data for members of the sales team.

3. Aligning Commission Schemes with Business Objectives:  Commission schemes should ensure there is a claw back of commission from sales teams where debts remain unpaid.  Additionally, you could consider schemes which defer commission payments where credit terms are agreed as exceeding your target level.  Once a sale is made, the responsibility for the sale should not be solely the responsibility of the finance department and incentivising the sales team should assist with ensuring cash is collected.

4. More than just Sales and Finance:  Your procurement department should not be appraised based solely on cost savings especially if these are the result of deterioration in credit terms or through bulk buying from your suppliers.  You should be able to monitor any savings made by your procurement department, improvements made to credit terms and stock levels.  Confidence in your business processes and systems will enable you to run a “Just enough” approach to procurement, stock holdings and order processing.  Additionally, you should ensure there are Service Level Agreements for Customer Services especially where these are an important USP for the business.

 5. Communicating Internally:  Once again, the importance of good internal communication cannot be ignored.  You should ensure your departments are not working isolated. Department heads should be aware of potential new business as a large new order will impact current production times, future lead times, resources planning, logistics, finance and most importantly cash flow!

Author: George McDonough, Finance Director of Lakeview Computers Ltd

Technorati Tags: erp finance, finance, George McDonough, managing debt

The finance function is ultimately responsible for ensuring the financial health of the business.  In the current economic climate, with restricted lending from high street banks, limited economic growth and cost pressures reducing operating profits, controlling the working capital of a business is becoming more critical.

Customers who pay slowly often do so as a means to support their own working capital and it is always a difficult subject to chase for payment.  However, it is important to remember your terms of business and that you have only incurred costs and used the working capital of the company until you receive payment from your customer.

George McDonough, FD, Lakeview Computers Ltd

To reduce the chances of a customer compromising your cash flow it is important to ensure your credit control processes are streamlined and automated where possible.  This can be achieved by:

1.     Using Technology.  Sending invoices by email will help reduce the time it takes for invoices to be processed and will provide a trail.  Invoices cannot ‘get lost in the post’ and you will know if an email has not been delivered!  Additionally, encouraging customers to pay by BACS will prevent cheques from being lost and taking additional time to clear the banking system.

2.    Ensuring Customers have received your invoice.  Your credit control processes should be sufficient to check customers have a copy of the invoice and that the invoice has been processed for payment.  It is better to be aware of any queries a customer has with approving the invoice before it is overdue.

3.    Understanding your Customer:  Regular credit checks should be performed to ensure your customer is able to pay for the goods you are supplying.  This should be factored into your credit control processes and the credit terms you are willing to provide.  You should ensure you are aware of the customers who consistently exceed their credit terms, dispute invoices and generally pay late.

4.    Enforcing your terms of business:  Your customers have probably signed up to your terms of business and you should ensure these are enforced.  A customer may have a reason for payment to be late, but consistent late payment will require action.  Ensure you have a good dialogue with customers and that they are aware their account will be placed “on stop”, the consequences of this and also how they can make payment.

5.    Communicating internally:  All your employees should have an understanding of the credit control procedures.  Existing customers should have credit limits and credit terms that are adhered to, and sales should only be accepted where the customer has the ability to pay.  Before you receive payment from your customer, the sale has cost you time and money and has used up your resources which could be better spent elsewhere.  Accounts which have been placed on ‘stop’ should be communicated within your organisation.

Stay tuned!

This is the first of two blog posts by George McDonough focused on making debt collection a company wide concern. The next in this series is due for publication next week.

Author: George McDonough, Finance Director of Lakeview Computers Ltd