How To Use Credit Control To Keep Your Cashflow Healthy

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by Jon Norris on 21 May, 2012

It’s no secret that the recession is hurting small businesses. As consumers tighten their belts, B2C enterprises are seeing their revenues drop off, and this lack of cash is slowly filtering upstream to B2B services.

Large corporates are often best placed to weather any financial storm, with plenty of credit available and deep pockets to tide them over. The first victims of any financial crisis are always small businesses, and the current malaise is proving no different. Insolvencies are thankfully beginning to slow, but they are still far above pre-recession levels with thousands of small firms shutting up shop every quarter.

The killer blow for these small businesses is more than likely a haemorrhage of cashflow. Even with reduced income businesses can still be managed, but if, for whatever reason, the money stops coming in, late payment fees on bills and interest on debtor invoices can quickly mount up. Pay these expenses on credit and you’ll have interest to pay on that borrowed money too – before long you’re facing a mountain of debt with no way to climb out from it.

There are some strategies you can use to keep a healthy cashflow during tough times to make sure that, even if you’re not profitable, you’re at least afloat.

Invoice early, invoice often

If you’re providing professional services (such as web design, consultancy, or any form of contracting) get your invoice in the second your work is finished. Every second you wait is a free line of credit you’re extending to your client – can your business really afford that?

For lengthy contracts or in-depth work that may require the purchase of equipment or subcontracting, take a payment up-front or suggest a staggered payment structure (for example 25% at predefined periods throughout your contract). This will ensure your business doesn’t go a long period of time without any income.

Stay on top of your books

There’s no way you can know your financial position without keeping your accounts up to date. Want to know if you’re in the black? Only your completely up-to-date accounts can provide the answer, so don’t be lax about your bookkeeping. You don’t need an expensive traditional accountant to manage this – there is free accounting software available online that is designed for non-accountants and can provide all your financial information (including your tax liabilities) at a glance. Check out Crunch for one such offering.

Don’t be afraid of penalties

The payment terms on any invoice you send are binding, so don’t be afraid to penalise late payers. Establish late payment clauses in your contracts and make sure your clients know about them. There is legislation that can help you here, too. The late payment of commercial debts (interest) act 1998 allows you to charge interest on late payments even if your client didn’t agree to any penalties when they entered into the contract.

Be bullish when attempting to recover money – let any late-paying clients know you won’t hesitate to charge interest or take legal action should they fail to cough up. This is especially relevant to large corporates, who, a recent study found, make up the largest percentage of late payers.

About the Author

Jon Norris


Jon is Editor of Freelance Advisor and a freelance writer. He lives in Brighton, and likes dogs.