How to optimise profit through effective credit management – ask the expert

Take a read of this Ask the Experts article by credit management expert Steve Savva, where Steve looks at the effects of optimising profit through effective credit management.

How to optimise profit through effective credit management – ask the expert

via How to optimise profit through effective credit management — Ormsby Street

Cloud accounting integrations come to CreditHQ

We’re excited to have rolled out a new feature within CreditHQ, connecting data from a business’ accounting software with our credit data in order to analyse financial risk and suggested courses of action in order to get paid sooner.

In Beta Testing with a selected group of CreditHQ users is our integration with Xero, one of the world’s largest cloud accounting services.

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CreditHQ’s cloud accounting integration brings invoice information and credit data on companies together to support small businesses make decisions on what action will reduce business risk and improve cash flow.

“Our aim is to support small businesses in making informed business decisions, so the integration of accounting data enables CreditHQ’s insight engine to make more tailored suggestions to reduce debt and its inbuilt tools to focus the limited administration time a business has into the areas that will have the biggest impact upon business performance” says Robert Drury, Head of Product at Ormsby Street, the company behind CreditHQ. 

Subscribers can link their CreditHQ and online accounting packages to ensure that the financial situation of all their customers is monitored.

Companies that a business trades with can be matched to credit reports and have their credit and payment performance monitored, ensuring the business is aware of the latest finances of companies whose performance can affect their own.

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A risk profile will indicate how much outstanding invoicing sits with high-risk businesses, highlighting which customers need chasing for payment and which need their credit terms adjusting.

The import of accounts receivable data will enable CreditHQ to analyse the invoices are at the greatest risk of non-payment and prompt businesses to take action in the areas that will have the largest impact.

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Christmas is just around the corner, so get those invoices raised now

We’ve all heard it before – ‘Cashflow is the lifeblood of any business” and it’s true, so we should do everything we can to ensure the money keeps coming, however we’re soon to be entering the season when a Christmas is going to get in the way.

Many businesses will shut down for the festive period, which means your customers won’t be paying any of their bills. In the meantime, you’ll need to be paying your employees christmas postholiday pay and not getting in any more new business as your team open presents and drink sherry, so cashflow becomes doubly important as you need to bring in the cash before the Christmas shutdown begins.

There are however a few simple things you can do in order to make this a pain free period:

  • Invoice as soon as you can – if you want your invoices paying before Christmas then work out when you need to send them by taking your payment terms and the last Christmas post into account. If it arrives on the accounts payable desk too close to Christmas it might get put on the ‘next year’ pile
  • Ask for payments before they become due – don’t wait until an invoice becomes due before chasing it, instead contact your customers as soon as an invoice looks like it might become due to get it processed before the office parties and mince pies
  • Keep your spending under control – if there’s a chance you might not get all your income received before Christmas then keep an eye on your spending so your cashflow can cope, even if it means a New Year party rather than a Christmas party

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Are you suffering from a scary credit score this Halloween?

Whether you’re a brand new small business or a more established SME, one of the main worries facing all business owners, has to be building up your credit score and avoiding getting into debt. Here’s a few tips to help you on your way…

1) Know your own credit score. It’s vitally important to be aware of how your company’s financials are reported when potential traders and customers are searching for you. If you don’t like the look of your credit score, are other people going to want to do business with you? If you’re looking for ways to improve your credit rating, take a look at our post on ‘how to get a better credit rating for your small business’

2) Be aware of your payment terms! Don’t get caught out by thinking you’ve got 6 weeks to pay a bill when it’s due in 4.  This may count against you and other businesses could find out and not give you the credit terms you want, so keep on top of what’s due when.

3) On the flip side, when you’re investigating who to trade with, find out which company is likely to pay you on time. If they’re likely to renege on their payment terms, you can ensure you set shorter terms or limit the amount of credit you’re extending to that particular less-than-reliable company. Check out our ‘How can I tell if someone’s going to pay me on time’ blog for some more tips

halloweenIt’s often bandied around at the moment, but the word ‘transparency’ is of huge significance when it comes to managing cash-flow, credit ratings and debt within any small business – so make sure you’re armed with all the tools you need and aren’t walking zombie-like into debt! Know your customers but most importantly, know your own business!

You can search over 7 million companies and register free by going to www.credithq.co.uk 

Invoice early in holiday season or you’ll get burned

Most small business owners get told that it doesn’t matter if they have a good idea or great service but what really matters is that they have an effective cash flow or else they won’t survive. And it’s true, cash flow is the lifeblood of any business, and as such we should do everything we can to ensure the flow keeps flowing.  However we’re soon to be entering the season when folks disappear off to the seaside which means they aren’t signing off invoices. It’s holiday season!

HolidaysMany businesses will have reduced staffing levels during the holiday period, which means your customers won’t be paying any of their bills. In the meantime, you’ll need to be paying your employees holiday pay and not getting in any more new business as your team also head off to get a tan.

There are however a few simple things you can do in order to make this a pain free period:

  • Invoice early – if you want your invoices paying before the holidays kicks in then get them out now. If it arrives on the accounts payable desk too close to flight departure time then it might not get addressed until they come back
  • Chase debt – don’t wait until an invoice becomes due before chasing it, instead contact your customers as soon as an invoice looks like it might become due to get it processed before the sandcastles and camping hits
  • Spend carefully – if there’s a chance you might not get all your income received before the holidays then keep an eye on your spending so your cashflow can cope, even if it means delaying the work summer social until September

But don’t forget to take a break yourself!  Everyone needs a holiday!

If businesses in Cambodia can pay on time why can’t businesses in Cambridge?

Back in February we set up a loan scheme with the international development agency Lend With Care in order to support the growth of businesses around the world.

Our loan was shared amongst four entrepreneurs in Vietnam and Cambodia and was used to purchase animals for rearing, obtain more land for farming, and set up a energy efficient plant for household gas.

So far 17% of our total loan has been paid back, and all of it on time, and no payments have been missed.

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If only this schedule of payments could be met by all the other businesses we trade with.

In the UK the standard length of payment terms (i.e. the  time a business has between when an invoice is raised and when it is due to be paid) is 30 days, however, the average time it takes a small business to get paid is 71 days!

This delay between expected and actual payment causes immense problems for business owners who need to pay salaries, replenish stock, or plan for growth.  For those who can’t fund this cashflow gap through additional loans, overdrafts, or invoice financing face real survival dilemmas.

Some recent research we have undertaken with freelance workers has shown that they face the same problem and 36% of them have even turned to payday loans to overcome the problem.

But it doesn’t have to be like that.  If farmers in Cambodia can make their payments on time, why can’t businesses in Canterbury, Colchester, and Cambridge?

At CreditHQ we believe that people should pay what’s due when it’s due, and that’s why our products tell you which businesses pay on time and which don’t, so our customers can make decisions on who they should trust their own livelihood with.

Late payments threaten to derail the freelance industry

UK freelancers are increasingly struggling with late invoice payments, with around half admitting they have considered quitting life as a freelancer because of worries over continued late payment, and 46% stressing about having enough cash to live on.

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Our latest research here at Ormsby Street, also reveals that one in ten freelancers have faced difficulties paying their mortgage or rent because of late invoice payment, and many have turned to family (37%) or even payday loans companies (36%) to cover a shortfall brought about by late payment.

While a fortunate 19% of respondents say most of their invoices are always paid on time, a freelancer’s invoices are paid on average 18 and a half days after their due date. At any one time, a freelancer in the UK is owed on average £5,431.03 in late payments and 79% of freelancers say that cash-flow is the number one concern for their business.

“Every freelancer knows that late invoice payment is one of the biggest frustrations, impacting cash-flow and causing much stress, from paying the mortgage to having enough money to live on,” said Martin Campbell, Managing Director, Ormsby Street. “For a freelancer to be owed more than £5,000 is clearly unacceptable and threatens the emerging freelance economy in the UK, which brings flexibility and work / life balance to so many.” 

The Office for National Statistics revealed in 2015 that 4.55 million Britons are now their own boss and research by the Association of Independent Professionals and the Self-Employed (IPSE) found three in five businesses agree that it would be difficult to operate without hiring freelancers. The Ormsby Street survey of 1,002 freelancers and sole-traders, revealed that 40% of respondents have taken out a County Court Judgement (CCJ) in the last year to chase a bad debt, and more than half say that late invoice payment is getting worse not better.

It remains a problem for many freelancers when it comes to chasing clients over late payment, partly because they do not have the time to spare, but also because of fears this might impact future work with that company.  57% of respondents say they worry that if they chase for payment that client might not use their services again, while two-thirds say they feel uncomfortable and awkward chasing clients for late payment.

“Why should a freelancer waste their own billable hours chasing payment for work that has been successfully completed and is already due for payment,” continued Martin Campbell. “If customers are not willing to pay within the agreed terms then it’s time for freelancers to become more informed over whom they work with, and either ask for payment upfront or even choose to not work with company.”

Special Freelancer rate!

With 49% of freelancers having had to turn down a contract because of concerns over a client’s ability / willingness to pay on time, we’re offering access to CreditHQ for the special freelancer rate of £12.50 for the standard subscription; allowing freelancers to obtain financial insight into every company they trade with. Sign up here to take advantage of this offer

“Freelancing has grown in popularity because of the choice and flexibility it gives people over their career, but its success relies on the prompt payment of invoices, which is not happening enough,” concluded Martin Campbell. “Credit-checking potential customers and partners is straightforward to do and should be done by a freelancer every time they work with someone, to protect themselves against late payment.”

About the research

An online survey of 1,003 freelancers and sole-traders was undertaken by TLF Research in March and April 2016.

CreditHQ, the credit-checking tool built by Ormsby Street, collates credit and trade information from Companies House, Experian and Dun & Bradstreet and presents that information in simple-to-understand credit and payment indicators, so a freelancer can assess which businesses are likely to pay them on time, or after 30 or more days.

Formed in 2014 to take over the operation of the financial data proposition of BCSG, Ormsby Street is developing the next generation of financial data services for small businesses. Its team of high-performing product innovators and software engineers are quietly taking sophisticated financial information and turning it into a next-generation digital tool to help businesses make good decisions about customers, suppliers and themselves.