For SMEs

I have never been slow to share a good idea with my readers; even when it comes from someone else.Ian Crocombe of Iandi Business Solutions has come up with a new slant on an old problem; the impact of change throughout your organisation. I can do no better than let him tell it in his own words...over to you Ian

"Change activity where nothing really changes, improvement where nothing seems to get better or work that just doesn’t work. Sound familiar?

There is a way to achieve great change, to continuously improve and to ensure work meets the needs of the organisation, its customers/users, members and colleagues.

We call it ‘business ecosystem thinking’.

Ecosystem is a term often used in biology to describe a community of living organisms like plants and animals interacting with each other in a given area and how those interactions take place in a non living environment. The non living environment includes the weather, sun, soil, climate and atmosphere.  We’ve taken inspiration from nature to describe another sort of ecosystem where living organisms - people - interact with each other in a non living environment made up of buildings, computers, phones, tablets and so on. 

Every business, social enterprise, charity, club or society has their own unique ecosystem, factors that allow it to thrive and threats that can potentially harm it. 

Managing your relationship with your customer from the start of your dealings with them can help

reduce write offs.

Successful businesses that survive the tough times and thrive in the good times have robust

processes. They will start with a prospect check before beating a sales path to the door of their

new prospective customer. What do we mean by this? Well, let’s say a sales representative has 50

prospects he would like to approach there is little point in him spending two weeks chasing one

or more only to find out that they don’t pass the company policy on account opening. A quick ‘prospect check’ can save much time and it will indicate whether that prospect is the next golden customer or a potential liability.

“We have dealt with them for ages and they have always paid us before”…… the words of comfort often uttered by suppliers facing for the first time an unpaid invoice from a regular customer with little sign of it being paid without recourse to legal action.

In fairness, this is perhaps the most challenging deadly sin to handle internally, often because you feel awkward. You’ve built up a certain level of trust with your more established customers - and they will often feel they have earned your trust and the right to ongoing credit with no questions asked form you. However, no matter how comfortable the relationship with a customer, It’s not a justifiable reason for ignoring warning signs that come your way.

It is sound credit management practice to monitor your customers?

There are many ways to do this, some internal – including monitoring their payment habits and how often you might have to chase them for your monies, and indeed whether they kept their payment promises or not.

Others might include access to a credit reporting monitoring service which alerts you to any meaningful change in the credit status of your customer. Be cautious of sole reliance on this type of solution however as it is far from failsafe - it’s often based on outdated information, such as the latest accounts from Companies House. It is an unfortunate fact that when you receive a warning that a company has a new judgement recorded against it then it’s more often than not too late for you to have any chance of getting paid. You must be a realist when assessing how important you are on your customer’s priority list for payment.

Are you easily replaceable or are you irreplaceable?

If the latter it could well be the case that you are oblivious to a customer’s difficult financial plight until the day that dreaded insolvency notice arrives in the post and the reason for your lack of payment becomes all too clear. Don’t let it get to this stage. Be on your guard with more subtle alternatives (such as the Register of Outstanding Invoices service for example - please ask us to explain how this is so important)

When gaining a new customer try and elicit the answers to these questions.

  1. Why is the company opening an account with us
  2. Is it because they have finally been worn down by our dynamic sales effort?
  3. Were they perhaps unhappy with the delivery service levels or pricing structures of their previous supplier
  4. ARE THEY COMING TO US SIMPLY BECAUSE THEY ARE ON STOP ELSEWHERE

You may catch out those companies using you purely as an emergency credit lifeline.

Once Again my thanks to Ken Brown from AccountAssyst for this Blog

To quote the oft repeated phrase “a sale is not a sale until it is paid for”.

Being realistic though, all businesses, and in particular SME’s have to take calculated risks with credit from time to time. However any risks should be based on the potential of a profitable return and they should be educated risks.

There is little point in being turnover rich, profit poor. Equally there is no value to be had having many suppliers that end up in credit notes or write-offs. A balanced common sense approach is always the answer.

Visit your clients and customers and gauge their enthusiasm about their own business but as mentioned in previous articles do find out why each new customer is considering giving their business to you.

It’s unlikely that you will be consistently paid on time, every time, if you are lax with your paperwork.

Sometimes you may not even get paid at all.

Errors on your part that can lead to you not being paid on time include.

  • Setting up your customers details wrongly on your accounting records – common mistakes being name and address/typographical errors.
  • Failing to quote order numbers on invoices.
  • Unsigned proof of deliveries (or timesheets).
  • A failure to make clear and get specific agreement to your credit terms.

Attention to detail is paramount. When did you last check an order received from a regular customer to ensure it was from the exact entity you had set up on your accounting records? Always worth checking regularly!

Don’t fall foul of any unscrupulous practices or ordering systems engineered to have you unwittingly supplying a lesser established company as the ‘Fall Guy’ just in case a project goes wrong. Wherever possible your credit limits and dealings should always be with the company within the group that is financially able to pay out even when a financial problem occurs with their trading division.

Occasionally, you might like to seek cross-company guarantees and/or Directors, personal guarantees where merited.

It’s unlikely that you will be consistently paid on time, every time, if you are lax with your paperwork.

Sometimes you may not even get paid at all.

Errors on your part that can lead to you not being paid on time include.

  • Setting up your customers details wrongly on your accounting records – common mistakes being name and address/typographical errors.
  • Failing to quote order numbers on invoices.
  • Unsigned proof of deliveries (or timesheets).
  • A failure to make clear and get specific agreement to your credit terms.

Attention to detail is paramount. When did you last check an order received from a regular customer to ensure it was from the exact entity you had set up on your accounting records? Always worth checking regularly!

Don’t fall foul of any unscrupulous practices or ordering systems engineered to have you unwittingly supplying a lesser established company as the ‘Fall Guy’ just in case a project goes wrong. Wherever possible your credit limits and dealings should always be with the company within the group that is financially able to pay out even when a financial problem occurs with their trading division.

[With many thanks to Ken Brown of Direct Route Collections Limited

Occasionally, you might like to seek cross-company guarantees and/or Directors, personal guarantees where merited.