How can I avoid small business failure?

Jan 11 2021

Management of cashflows, especially receipts from customers, is a major headache for SMEs and one of the biggest causes of small business failure. You can help yourself to manage cash flow by adopting effective invoicing strategies and getting financial help to avoid a cash crisis.

Here are four expert tips on how to keep cash coming in on time:

Anticipate problem customers

Proactivity is essential. Many small businesses get caught up with overdue receivables because they don’t manage their customer accounts effectively.

Make sure you’re on top of all your customer collections so that you know exactly which clients owe you money and when the money needs to be collected. Talk to your customers regularly and especially close to due dates, so that you can address potential problems early. This can be done through simple accounting solutions such as Xero or by setting up a database with reminders.

Establish terms of credit

There’s little incentive for customers to pay you on time if you don’t have strong credit terms in place. Vague wording in your proposals, customer contracts, or invoices can lead to late payments.

Make sure all your proposals, customer contracts, and invoices clearly outline when your clients have to pay you and any terms and conditions they need to keep in mind, such as interest rates, ownership of title, etc.

Due diligence

Researching potential clients before you take them on minimises the chances that you’ll get stuck with customers who are renowned for paying late or not paying at all.

Look into your clients’ credit histories and determine whether they will be reliable. Only work with companies and individuals you can trust to pay on time. EFM Ireland uses the Creditsafe tool to conduct a thorough background check on the businesses and business owners we meet and highlight any red flags before agreeing on any business transactions.

Use debtor finance

Sometimes, despite your best efforts, clients will fail to pay you on time.

For a small business owner with competing demands on your time, chasing up late payments is very time-consuming. Consider finance solutions that don’t involve taking out a business loan or dipping into your savings.

Using debtor or invoice financing is a way to get some money upfront, although this does come at a cost.

EFM Ireland can help you to manage your debtors

We have a dedicated team that can work onsite or remotely, to manage and follow up with customers, collect overdue amounts, and set up procedures to minimise the risk of late customer payments in the future. This will allow you to focus on running your business.

Planning sensibly from the beginning, being firm with your payment terms, and performing credit checks will improve your cash flow and get your business back on track. When you need that extra helping hand, EFM Ireland is on hand to support your business’ financial management.

We have designed the EFM Cashflow Healthcheck tool so you can easily get an indication of the financial health of your business. This review will alert you to situations that need to be addressed, so you have a better idea of where your money is, where it’s going and what you need to do, to stay in control.

If you’re interested in learning more about finance management solutions and whether it could be the right move for you, EFM Ireland offers a free 1-hour consultation to understand your business and suggest appropriate strategic options. Contact the EFM Ireland team today via email or call 01442 8176.

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