Managing cash-flow requires specific skills and experience – and small businesses are often lacking in both. It’s unlikely that anybody in your company is suitable trained and there is often a lack of understanding of the cash collection cycle.
Add to that the pressures of other work and the common difficulty many people face when asking clients for payment, and it’s easy to see how things start to slip. All too often, the reaction to poor cash-flow is focused in the wrong direction. Looking to your bank to help you ease the pressure or moving to factoring or invoice discounting can often be avoided, and always better handled, if credit control is managed properly. My Credit Control proactive approach will ensure that your business is effective in all aspects of the cash collection cycle – from making sure invoices are sent out on time through to chasing payment before it comes due. The approach to your clients will always be sensitive yet professional, removing the concern about customer relationships being damaged. Working on a fixed monthly fee, ensuring you will not have to be concerned about any unexpected costs, My Credit Control will keep you fully up to speed providing weekly reports and communication records.
Small businesses have the odds stacked against them from day one. It’s estimated that only 45% will make it past the first five years and of those that fail, more than 80% do so because of poor cash-flow.
These companies have no third-party funder and are responsible for collecting their own invoices for the benefit of their own bank account. They are invariably focused on growing their business but ineffective collection of cash can lead to the failure of what is otherwise a successful business. The first their bank managers know of any problem is repeated requests for overdrafts or overdraft extensions. My Credit Control can turn the odds back in your favour by managing all or any part of the cash-flow process on your behalf ensuring you don’t become another statistic in the business Press.
Example client: A business delivering to the education sector with a turnover of £170k per month. The company was growing rapidly but was suffering from late payment and there was no third-party funder. We reviewed their cash-flow process and identified the main issues. This resulted in us revolutionising their internal systems from a very manual, three-step process for issuing 100 invoices per month, with little formal credit control, to one that utilises cloud accounting to issue invoices in a fraction of the time – allowing us to focus on collecting the debt. Debtor days reduced to 87 to 37
When businesses start to suffer from cash-flow issues they often see factoring as a solution without fully understanding the process or the impact it will have on their business and relationship with their clients.
Factoring is an expensive form of financing cash-flow – especially over the long-term. Often businesses misunderstand what the factor company will actually do for them. They think that the factor company is proactively chasing invoices – it isn’t. It’s an impersonal service that can create friction with clients.
Factor companies are not proactive. They tend to start first collection on the day the invoice is due, by definition that means everything they collect is overdue. Bad debts can, and often are, returned to the business to collect itself at a point when even credit controllers would struggle to collect them.
Services charges are high with interest charged on funds that are drawn down by the business. The managing director of the business is normally the main point of contact for the factor company, meaning there is no release for the MD from the day-to-day cash collection cycle.
If you have already entered into a factoring agreement, My Credit Control can work alongside the existing factoring collection team. By being proactive and chasing invoices before they are due we can help you stay one step ahead of the factoring company. This helps reduce debtor days, reduces interest fees and frees up your time to continue to focus on the business.
Our ultimate aim will be to help you transition away from factoring to far more cost effective CHOC/ID facilities.
Example client: A business supplying labour to the care home industry that due to the pressures that came from rapid expansion, had signed up to factoring agreement prior to our involvement. They quickly became overrun with the continuing day-to-day management of cash collection despite the factor company providing collection services. My Credit Control immediately took control of the relationship between our client and the factor company, and the client and its customers. Our clients moved to a CHOCS facility and is currently investigating potential sources of funding to replace CHOCS. Debtor days have been reduced from 75 down to 46.
CHOCS and ID agreements provide clients with up-front funding based on a set percentage of the total invoice amount. The funder is less hands on than a factor company would be so fees are lower.
The client remains in charge of the collection process – satisfactory proof of how this will be managed is required ahead of funding being offered. The funder gets minimum collection targets each month and requires monthly reconciliation of the ledgers.
My Credit Control has helped many of its clients move from factoring to CHOCS/ID agreements as well as working with companies who already had agreements in place. We help provide the funder with the necessary reassurance of a cash collection process, manage the whole cash-flow process ensuring that monthly collection targets are met. In addition, we provide the necessary reporting to the lender to ensure the continuity of the agreement.
The effectiveness of the service we provide is demonstrated by the fact that funders actively seek leads from us as we provide them with the levels of comfort they are looking for.
Example client: A business supplying pet food to high street chains. Having the sole UK distribution rights to a pet food brand, our client was previously supplying independent retailers nationwide. Upon signing an agreement with a national chain, our client was introduced to us by a third-party funder, where we became a proviso of the funder agreeing a facility with our client. Maintaining debtor days in the low 50s.