Question: How can I minimise the impact of payment delays and ensure the liquidity of my business in light of the current financial storm?
Harry Parkinson, managing director of Close Invoice Finance in Ireland, replies:
Businesses, both large and small, are increasingly finding themselves under threat by extended payment terms and wondering how they can possibly stay afloat in these difficult economic times.
According to financial information company Experian, the number of days that large firms take to pay an invoice has increased from 81 to 88 since June, with some even predicting this could rise to more than 100 days by next year.
Corporate giants are taking longer to pay their small suppliers. Some businesses are going to have difficulty in financing their short-term debt.
Banks aren’t helping, with their expensive overdrafts and loans, not to mention an unmistakable tightening in their lending criteria, and so I would urge companies who are struggling to consider alternative methods of borrowing, if they haven’t already done so.
Invoice finance is becoming an increasingly attractive option – and in some cases the only option - for small and medium sized enterprises, proving an excellent solution to overcome their funding challenges.
Simply put, invoice finance works when a company sells its unpaid invoices and in return receives immediate payment of up to 95% of the worth of those unpaid bills.
The beauty of it is that businesses have instant access to cash flow leaving them to get on with the running of their business. Small enterprises in particular are traditionally vulnerable to financial downturns because they operate on tight margins, but that’s not to say that larger companies are immune.
My advice would be for all businesses to review their financial requirements, especially those with financing arrangements that will need to be renegotiated in the next 18 months.
Companies that adopt a wait-and-see approach face the greatest risk. Businesses need to refinance early to ensure their liquidity.
Question: We are a small business. How would you recommend that we maintain our sales in the current economic climate?
Colly Graham, a sales training consultant with salesxcellence in Northern Ireland replies:
The first lesson to learn is not to panic, manage your mood, keep a positive attitude and translate this attitude to your staff.
All companies need to have a sales strategy, which is basically a calculated and tactical plan for acquiring new business, growing existing business and making and/or exceeding the company sales quota.
As with all good plans you need to begin with the end in mind.
What is it you want to achieve? – be specific. Knowing what you want to achieve will allow you to formulate the necessary steps to achieve the results you are seeking.
There are four basic elements in a sales strategy. These are new business strategies, new business acquisition tactics, existing business growth strategies and existing business growth tactics.
Sales quota is a critical element of the plan which sets the tempo of efforts throughout the year and provides quarterly, monthly, weekly and even daily sub-goals for you to achieve.
Then there is sales territory, which refers to the geographic area, list of named accounts or specific market niche you have been assigned to in which you are to sell products, services and solutions.
In the current climate, a carefully defined sales strategy will give you a clear focus not only to maintain sales but to grow sales through your existing and new customers.
Question: I run a small business that is beginning to feel the effects of the credit crunch. Have you any advice on what I can do to help keep my business solvent?
Annesley Harrison, from Invest NI’s corporate, finance advisory and appraisal division, replies:
A business is insolvent if it doesn’t have enough assets to cover its debts or is unable to pay its debts when they are due.
To avoid getting into this position you need to closely monitor your business performance against budget and in particular your cashflow.
Keeping your cashflow forecast as up to date as possible will mean that you will get an early warning of potential problems, such as dips in income.
You can then take action to ensure that this doesn’t lead to difficulties for your business.
Ways of improving your cashflow include invoicing promptly and regularly. If you are involved in long projects ask for regular payments across the life the contracts rather than waiting for one large payment at the end.
Also make sure you chase up any debts owed to you.
If your business involves buying stock or raw materials you should take a good look at two things: firstly, are you getting the best deal from your suppliers; and secondly could you reduce your stock levels to release cash for your business? You can also release cash by selling assets that you are not using fully.
If you anticipate that you may be getting into a position where you are struggling to pay your creditors there are some options open to you.
You can speak to your suppliers and try to renegotiate credit limits and payment terms with them. Or you could talk to your bank about a loan or an increase to your overdraft.
However, you need to ensure that you can foresee an upturn in business again before you acquire more debt.
There is a lot of information about financial control on the nibusiness info.co.uk website. See especially the section on avoiding insolvency.
However, it is recommended that you seek professional advice.