Terms of Endearment

7/12/2018

As specialists in funding assets for our clients, we’ve picked up some pointers on ensuring that your business can generate the financing required for growth. Here are my seven tips for doing business on the right terms – and enforcing them with great internal processes.

By Chris Pacey

The single biggest lesson for the businesses we see is to create invoices that enable us to fund favourably. Your receivables can be turned into hard-working cash – but there are a few simple ways to maximise the funding available to you.

1. Get your mindset right.

We do see companies where the first instinct is to be overprotective of the customer. Chasing them for payment, or stricter terms, feels like it’s bad for business. But the truth is a good customer is one who pays on time. Get into a professional mind-set throughout the business, from sales to the back office, and your payment experience will improve – and show your own business in a much better light.

2. Be firm with your terms.

There is a general trend toward extended terms often being driven by bigger businesses. Be careful with T&Cs – ensure that you can comply with them. We’ve seen companies operating on T&Cs or contractual arrangements that are really hard to meet under any circumstances. That means it’s much harder for us to finance those invoices. It can be hard to shift that power dynamic, especially if what you supply is easily replaceable. But we’ve been able to extend finance up to 120 days for companies whose products are key to the customer supply chain. For example, whilst you might expect a major car manufacturer to have all the power in their relationships with their customers, they can’t sell cars without an interior door hand or other tactile piece of trim which can take weeks or months to redesign and manufacture, all the while they have cars waiting on the production line.

3. Have a zeal for paperwork.

Most clients do so much right – good customers, great products and good terms – but miss one or two relatively simple bits of the paper trail. Order confirmations are key, along with clear and agreed T&Cs. Get those signed and recorded along with proof of delivery, and your financing options improve. Then do your due diligence on your customers, especially new ones as you grow. We’ve seen aged debtor reports where the legal entity hasn’t been confirmed or has changed since the client first worked with them, in their haste to win new business.

4. Invest in credit control.

Many businesses wait too long as they grow to get formal processes in place for credit control checks and invoice management. There’s no point having great payment terms if no-one is on top of collections or if the process is slack. Whatever formal finance roles and processes you set up, work on internal comms, too. Salespeople know a lot about customers and can often have vital information or insight which can assist in effective credit control.

5. Plan for exceptions.

Even with great systems, products, people and paperwork, you’re going to get situations where a customer disputes an invoice or has issues with product or service delivery. So plan ahead for queries and disputes, with a clear and fast process for escalating them to someone with the authority to sort them out. Know who at your customer can resolve disputes or queries. Remember: lots of big companies only do one or maybe two payment runs a month. Miss one thanks to a minor dispute, and you’re potentially hurting your cash flow.

6. Keep your ledgers tidy.

 When the ledger is a mess? It’s a red flag, suggesting a variety of stresses – not least that the finance function could be under-resourced. Generally a tidy ledger is a reflection of a well-run business. That’s often an issue in growing businesses, where things are going great because management has invested in sales and product… but not admin. And, of course, those are the very businesses with most to benefit from Invoice Finance, freeing up cash to facilitate the growth. A good acid test is the aged debtor and creditor report. If it’s neat and up to date, generally the rest of the business will be a reflection of this. It’s a big tick.

7. Hold your nerve.

Great controls and processes are key to maximising your business cashflow. But some of our best clients demonstrate real nerve in conversations with their customers – knowing when to walk away from onerous T&Cs or overly complex contracts. That’s one reason we love clients whose customers rely on them. The relationships tend to be stronger, the invoices more collectible – and the amounts we can finance higher. But get all the other bits of the T&Cs, paperwork and payments process right, and you’ll be surprised at how much this can facilitate freer cash flow.

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