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Small businesses must manage cash flow drivers to see their way through the challenging New Year period, says Scottish Pacific chief executive Peter Langham.
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SMEs facing New Year's cash flow challenge
08 January 2015
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"We see the same thing every January and February. With the pre-Christmas rush behind them, business owners return to find many customers still on leave and getting invoices paid becomes even more difficult than normal," Mr Langham said.
"It can also be a time of worry, as retailers are relying on good Christmas and New Year sales to bolster their cash flow and determine how quickly their suppliers will get paid," he said.
Mr Langham advised SMEs to provide credit only to those who deserve it; to agree to payment terms with customers and make sure they adhere to them; and to work with suppliers so stock levels are minimal and payment terms are in line with their own cash flow cycles.
A statement from Scottish Pacific highlighted the firm’s advice to SMEs:
Credit to the right people – base the amount of credit given, and payment terms, on the credit quality of the customer and their payment record. Take references from other suppliers and watch for deteriorating payment days.
Payment terms – After agreeing to terms, remove any obstacles that could delay payment: have correct details required on invoices, state payment terms, cross-reference purchase orders and have proof of delivery accessible in case of query or dispute. Don’t assume payment will be made on the due date – issue statements, regular reminders and make follow up calls.
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Work with suppliers – understand which lines are fast or slow moving and ensure holdings are related to speed of movement. Don’t pay before the due date, unless you are getting a good discount and the cash flow supports such payments. Have the supplier understand your cash flow cycles to help manage their expectations.
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