Rapid Growth and Outsourced Credit Control

Fast-growing businesses should always make sure the money is coming in promptly

Whilst many companies are struggling to crawl out from the recession and would arguably give up their right hand for some bank lending or rapid growth there are a significant number of North West based businesses that are in fact experiencing rapid growth, and along with it, the difficulties it brings in managing that growth, not least, making sure they are getting paid on time

Bank overdrafts and traditional forms of bank lending which have been the age old bolster of cash flow are not, as claimed by the banks ‘suffering from low demand borne from customer apathy and a desire not to borrow’. Instead many small businesses are either excluded from the market via the banks overzealous credit scoring, or those approved are then effectively priced out by excessive security demands and high rates, some 12-15 percentage points over base.

The lack of a bank overdraft puts more pressure on cash flow and liquidity. Without such a facility in place, more and more businesses are seeing their businesses at risk of liquidation, even when the sales are increasing.  Many business owners simply get swept away with the sales activity and behind this excitement and buzz, is the paradox that the more business a firm does as a result of rapid growth, the more at risk it is from failure.

If we take an everyday scenario of a business that gets a new customer (company A) and with it a surge in business, the supplying firm has to invest in extra resources be they staff or more man hours, more raw materials etc and then sets about fulfilling the new customer’s demand. Just as the order to company A is fulfilled another customer (company B) enters into the equation and another high value order ensues.

With company A’s order being shipped, the supplying firm has at this point assumed all the risk and needs to invest more resources and cost into fulfilling any normal orders plus the new one from company B. Without bank overdrafts being as available as they were 2-3 years ago, most firms faced with such a scenario will cling onto the new business and would rather divert funds earmarked for other uses than turn away an order.

And this is where the problems can escalate very quickly.

Cash in bank is usually earmarked for day to day business expenses such as utilities, staff wages and for obligations such as VAT and National Insurance. In the current climate, many businesses do not have cash reserves and as such are living month to month balancing cash flow. In the classic case of robbing Peter (money for this months wages / VAT etc) to pay Paul (buy more resource to fulfil new orders) a business can find itself in hot water if a customer delays payment and monies in, are less than anticipated.

Staff have their own bills such as mortgages or rent to pay and if told that they can’t be paid and their wages will be delayed, few will be understanding of the predicament. HMRC with a mandate to get tough on late payers are understandably even more reluctant to listen to excuses and in many circumstances have and will, issue a winding up order to protect money owed to it citing that a business is trading whilst insolvent, i.e. unable to pay its obligations when due.

So without any overdraft facilities small businesses have to be smarter about cash flow management and to make sure that their customers pay on time. Maintaining a robust approach to minimising late payments is crucial to cash flow and yet recent surveys have indicated that upwards of 70% of businesses in the North West still suffer from late payments.

Businesses are going through tough times at the moment and whilst some are arguably finding it difficult to meet their outgoings, you have to be tougher and worry more about your own obligations as small business simply cannot afford to accept excuses for late or non-payment from their customers.

Whilst Debt collection is seen as the killer to customer service, before the words ‘debt recovery’ are spoken to your customer or put in a letter there are other alternatives to getting paid on time and without seeming heavy handed.

Robust Credit Control Management

By having in place a suitable method for tracking payments and invoices, oversights can be removed and customers can be contacted throughout the process to ensure that they have the invoice, are understanding of the process and due date, and are willing and crucially, are able to pay on time.

For reasons as to cost, many small businesses simply don’t have the resource to have a dedicated, professional and fully trained credit control team in house, and more often than not this vital function is given to sales people or bookkeepers whom are not trained, nor usually willing and certainly not able to fulfil this duty to the required level the business needs.

Outsourced credit control is the perfect solution to this problem.

This vital function is outsourced to a professional credit control management department from a suitably qualified debt recovery agency such as Corporate Credit Debt Recovery, who will contact your customers for you to arrange payment and ensure that all the information required to manage the credit control function are up to date and able to be understood and analysed by management. And with an outsourced credit control service, your customers are contacted by Corporate Credit Debt Recovery acting as an in-house extension of your business and not as a ‘debt collection’ agent.

By outsourcing credit control, customer contact is purposeful and professional so that the relationship with your customer is maintained but at the same time, if there are any issues that may delay payment (e.g. non delivery) that this information is fed back to the business to investigate further.

The sole purpose of the debt collection agency’s contact with the customers of someone using outsourced credit management, is so that all barriers preventing payment of any outstanding invoices are removed, in order that payment can be received on time, as agreed.

If you would to discuss any of the issues highlighted in this blog post then please give CCDR (Corporate Credit Debt Recovery) a call and we will give you our advice on how reduce your debtor days and protection against bad debt.

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