Revitalise business cash flow

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Never mind all the other elements that get hyped so much – including the glamour of marketing and the drama of new business development – cash flow is quite simply the lifeblood of all business and every business. The living, beating, pulsing heart that keeps it flowing is the accounts software and its management of the Debtors Ledger and ability to warn and assist in taking action when accounts become due, overdue – and seriously problematic.

In fact it is probably true to say that the success of any small business is going to depend in fairly large measure on the level of efficiency with which debtors and credit control generally are managed. It also has to be said that poor management of debtors is a major contributing factor in the failure of small businesses. For a start it erodes working capital and pushes up the costs of bank and other financing. Bad debts – whether they can be fairly judged to have been avoidable or not – can have a disproportionate and even devastating effect on the smaller business.

Every single expert on credit management agrees that it is not rocket science and not even difficult. What it needs in the first place is to actually get done – which is why leaving it to the boss or management is generally not the best approach, because too many other apparent priorities will get in the way. Human nature means that people with an eye on future sales are seldom the best at chasing payment for those already made. The other essentials for good credit control are method and consistency. Even hardened slow payers find it difficult when invoices are sent out promptly and accurately, statements are regular and follow through phone calls politely but firmly ask “When?”

All accounts packages have features that assist with credit control, of which the Aged Debtors list is the basic and indispensable tool – allied of course to the generation of monthly account statements. Tracking of everything to do with invoicing and payment is what the software should do. In essence that will be about exceptions, from disputed transactions which need to be dealt with quickly to all accounts that are outside of whatever you set or accept as your norm. Nominal credit periods range from 15 days and the more usual 30 days (both very nominal indeed in most businesses) to the 45 and 60 day intervals that are about par for the course in Irish SMEs. Some sectors by convention – and some big customers because they can impose it – start at 60 days. So it becomes particularly important not to let them stray too far over the line.

Take a line from Sage

Sage Line 50, for example, has wizards that helps you to quickly set up the ‘rules’ for managing an account as it is being set up initially. Not all customers will be the same and you will want the flexibility to differentiate and then change as the relationship progresses. ‘Customer Relationship Management’ is a much hyped concept in today’s business world but as far as the credit controller is concerned that means always knowing the exact history, with logging and notes of contacts, promises and so on. “It’s much easier to get people to pay when you have all the details at your fingertips,” says Katrina Buchanan, who looks after the credit control function in Hireco, a Dublin-based leader in the field of trailer hire for the haulage industry. She took over a short while ago after several years on the other side in purchasing. “You sound very professional on the phone, you know every contact that has been made – so they pay up.” Looking after nearly 1,000 accounts with about 350 live debtors at any one time, her first thought with her new responsibilities was how to identify the priorities. “Perhaps because I was new to it I dug deep into the Sage Line 50 manual and found a whole lot of useful tools that we had not been using. Now I only make about six to twelve calls a day because they are scheduled through the calendar and TaskMaster. I have my Monday morning list based on the age of the debt in descending order of value and work on from there.” Now Hireco’s UK and Belfast offices, also Sage users, are looking at copying her system.

Her experience echoes a point made by several experts in the accounts software market. “It’s true of accounts systems as of all other applications that most users never get beyond about 20% of the functionality of the product,” says Ian Lucey of Sage Ireland. “But the information you need for credit control is in fact always in there and both our Sage Line products and the TAS range can produce a range of reports ‘out of the box’ that really should satisfy almost all smaller businesses. If you really need to ‘slice and dice’ your debtor information in a special way, they will all allow you to build your own reports from scratch.”

On the other hand, better cash flow is generated by the application of the information as much as the analysis. “In credit control the key is timeliness – invoice speedily and at least weekly, always get the statements out on time at the same time,” says Páraic Nolan of Irish International Sales, publisher of the entry level Big Red Book as well as major resellers of Take Five. “That depends on people rather than software but any system will facilitate doing that if a disciplined routine is set up.”

This is exactly what Accounts Manager Denise Wilson has put in place in Carroll Architectural Doors, the Dublin firm that is a market leader in specialised fire doors in wood and various laminate materials. “We have Sage Line 50 with five users – four sales people and myself. So we all have the same view of the clients and can use the system. We do a weekly analysis of the aged debtors, split by departments, and my sales colleagues essentially chase their own customers and about half of our customers – say around 150 debtors at any one time – are actually very good.” After that she swings into action herself armed with all of the information from the shared system. “I watch and chase the oldest accounts personally and can put a tag on an account that alerts the sales team, either about the credit limit or late payment. It all works very well except that I have to say that in the construction industry the biggest firms are often the slowest payers.”

Cash flow on hold?

The proliferation of phone shops around the country may make the business of selling phones appear a simple model to the outsider, but veteran (since 1985) Conor McGuire of The Communication Store in Naas describes how sensitive his business is to cash flow: “We pay COD for the phones themselves to get the best discount prices, but then we depend on the networks to pay us for new accounts and the subsidy element. Now if credit customers take too long to pay us, we are going to be severely stretched.” Running about 100 debtor accounts on average, this business uses the entry level Big Red Books package and Conor McGuire swears by its simplicity: “Even I can use it. It gives aged debtor warnings and clear reports – and data is easily uploaded to Excel for me to work out the impact. With that information I make credit calls every Monday, Wednesday and Friday – and that’s how we keep it under control. Because although most accounts are not very big it all adds up to a serious amount for a business our size, so it’s just plain crucial.”

Things your accounting software should be able to do

Whether automatically or by warning prompts, your accounts software should be able to do most or all of the following:

1. Sort debtors by age and amount of debt – Aged Debtors report.
2. Flag invoices due and overdue for payment.
3. Identify accounts that are near/at/over the assigned credit limit.
4. Flag orders or deliveries that will exceed limits.
5. Freeze accounts automatically or prompt for a decision.
6. Show the longest outstanding invoices.
7. Sort outstanding items by sales person, outlet, business unit, etc.
8. Generate predefined payment chasing letters/e-mails/faxes of rising levels of seriousness.
9. Analyse the order/payment patterns of each customer.
10. Allow for notes of phone conversations, payment promises, etc. to be made for each account.
11. Generate reminder prompts for follow through.
12. All accounts systems should be able to export summary data to a spreadsheet such as Excel for further analysis or ‘What if?’ type projections and calculations, e.g. what would happen if we got average payment down to 35 days? Your bank manager may well look for such information or you could impress with smart calculations to show that your overdraft is realistically based.

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