The first step to knowing what can be expected to go in and out of your company’s bank accounts is to prepare forecasts for payments and receipts in a relevant period. The better your overview of payments and receipts, the quicker and more accurate forecasting becomes. Most people would be surprised by how much of the movement in and out of their corporate bank accounts is actually predictable. Most companies find a rolling 12-month liquidity forecast to be the most effective solution.
There is no need to put off billing once the goods have been delivered. Perhaps you could also agree that at least part of the deliverable should be paid for in advance. Do you have a complete overview of fixed agreements with your customers? The first commandment is to have complete control of who the contact person is and where the bill is to be sent. The second commandment is to produce a bill that the payer finds easy to understand.
Do you still send invoices out by post? Or have you updated your system and use e-mail, with the invoice as an attachment? Sadly, neither of these methods is particularly forward-looking. Today, it is best to issue electronic invoices directly from your ERP/accounts system. Perhaps you could also start using low-cost solutions for immediate mobile payment or card payment instead of billing in arrears.
Is your customer a late payer? Written communication and reminders can put up barriers, or be ignored. But if you phone the customer instead, you can use the opportunity to find out how they are doing and ask if there is any special reason they have not paid by the due date.
A short-cut to speeding up the receipt of income due is to get professional help. By selling your invoices to a third party (factoring), you get the money into your account straight away, while someone else chases up your customer’s payments. The downside is that there is, of course, a cost, since you won’t receive 100 per cent of the invoice’s face value. Nevertheless, many companies find that this is a very effective way to improve their liquidity, not least because they don’t have to spend time chasing up trade payables and reminders.
As a private individual, we know how new regular expenses can mount up almost imperceptibly: a new subscription, a new monthly contribution, a new purchase delivered to our door … All well and good, so long as we actually use them. It is the same for companies. Costs are generally incurred to support value creation, but in a dynamic company, the need for input factors changes all the time, so it is vital to have a complete overview of all ongoing agreements. You can also cut costs by renegotiating the agreements the next time they come up for renewal – as long as you know when that is.
Do your customers and suppliers have different credit periods? Do you have to pay your company’s suppliers in 14 days, while your customers pay you in 30 days? In that case, you are creating your own liquidity problems. These challenges can expand when things are going well and the company is growing, because you have to pay more in salaries and subcontractor costs, while the new revenues earned have still not been paid into your account.
We have developed Complete Control so our clients will have a complete overview of day-to-day revenues and expenses. Most clients experience a rapid ROI simply because a complete overview of the company’s commitments shows that they have a lot of outgoings that can be cut out.