Conclusion
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Introduction
Cash is the lifeblood of your business. Without a regular supply of cash, your business will fail.This advice is based on the answers you gave in the questionnaire and is an outline of things you can do to improve the flow of money through your business. Our guides on the basics of cashflow management, getting paid on time and managing late payment provide a good overview of the fundamentals of cashflow.
Even if you are a sole trader or run a micro business, you need to make sure you set and enforce payment terms and undertake credit checks where necessary. Even if your customers are sole traders or friends, you are running a business – they should not take offence if you introduce a contract.
Agreeing terms at the outset can avoid future disputes, which could cause far more damage to your working relationships than any initial embarrassment.
Even where your suppliers and customers are much bigger than you, best practice when it comes to invoicing and terms is more likely to get you paid on time. See our guide on invoicing and payment terms.
Know who you're doing business with
The people or company that own the business, and who are liable for any debts, may not be the same as the name under which the business trades. If you need to take any legal action against a customer, you need to be sure of who you are dealing with.It is therefore important to check out the exact name and legal status of any business you supply. For more information, see our guide on legal structures: the basics.
You supply to limited companies. If your customer is a limited company, you will be able to find out basic details about them for free online - search company information using the WebCHeck service at Companies House.
You supply to sole traders or partnerships. If your customer is a sole trader or partnership, then the proprietor or partners of that business are personally liable. So you should make sure you have their full details, as businesses can disappear much more quickly and easily than individuals.
You supply to private individuals. Check whether they appear on the Voters Roll by visiting for example, the tracesmart - Opens in a new window website.
You should conduct credit checks for all of your customers and potential customers.
You should ask all potential customers to complete a form authorising you to get bank, credit and trade references.
You should then make the necessary checks with the customer's bank, a credit reference agency and some of their suppliers.
You can also get information about the company from Companies House, The Insolvency Service, the Registry Trust, the Institute of Credit Management and other sources. For more information, see the page on credit checking potential customers in our guide getting paid on time.
If you supply private individuals, they may not own a property and can go bankrupt. So credit risks can apply.
Check whether the person has any County Court Judgments registered against them - Opens in a new window and ask for trade references, particularly if the customer is a sole trader.
Reducing credit risks depends upon the amount and frequency of sales.
You should ask all potential customers to complete a form authorising you to get bank, credit and trade references.
You should then make the necessary checks with the customer's bank, a credit reference agency and some of their suppliers.
You can also get information about the company from Companies House, The Insolvency Service, the Registry Trust, the Institute of Credit Management and other sources. For more information, see the page on credit checking potential customers in our guide getting paid on time.
If you supply private individuals, they may not own a property and can go bankrupt. So credit risks can apply.
Check whether the person has any County Court Judgments registered against them - Opens in a new window and ask for trade references, particularly if the customer is a sole trader.
Reducing credit risks depends upon the amount and frequency of sales.
- For large amounts and infrequent transactions, you can ask for a deposit (at least to cover any upfront payments such as materials) or full payment in advance.
- For large amounts and frequent transactions you need to make full credit checks and control the amount of credit as a business customer.
- For smaller sums and frequent transactions be guided by their past payment history. If a customer unduly delayed payment in the past you must question whether the time spent chasing payment is greater than the profit on the sale.
- If you accept debit or credit card payments you must be sure the customer has the credit available to make payment.
Based on the answers you have given, there are no critical issues with identifying your most valuable customers. You might be interested in the page market more effectively in our guide on how to identify and sell more to your most valuable customers.
It is recommended that you consider having credit insurance in place.
Even though a business may currently be creditworthy, it may not continue to be so. If a customer becomes insolvent and cannot pay its debts, this can have an impact on your business, especially if large amounts are involved.
Credit insurance can help businesses protect themselves from the risk of late or non-payment. Credit insurance for businesses - also known as business credit insurance and trade credit insurance - differs from that available to individuals and commonly pays an agreed percentage of an invoice that is unpaid as a result of default, insolvency or bankruptcy. There are also other insurance options available to businesses, such as health and safety and liability insurance. Use our interactive tool to work out which forms of insurance you should have for your business.
You may also wish to consider a non-recourse factoring service which will improve your cashflow and provide insurance against bad debts. For more information see our guide on factoring and invoice discounting: the basics.
Even though a business may currently be creditworthy, it may not continue to be so. If a customer becomes insolvent and cannot pay its debts, this can have an impact on your business, especially if large amounts are involved.
Credit insurance can help businesses protect themselves from the risk of late or non-payment. Credit insurance for businesses - also known as business credit insurance and trade credit insurance - differs from that available to individuals and commonly pays an agreed percentage of an invoice that is unpaid as a result of default, insolvency or bankruptcy. There are also other insurance options available to businesses, such as health and safety and liability insurance. Use our interactive tool to work out which forms of insurance you should have for your business.
You may also wish to consider a non-recourse factoring service which will improve your cashflow and provide insurance against bad debts. For more information see our guide on factoring and invoice discounting: the basics.
Your customers and financial difficulty
Based on the answers you have given, you appear to have no customers in financial difficulty. If you do start to suspect customers of experiencing problems, take a look at the pages on signs of customers in trouble: hard evidence and signs of customers in trouble: soft evidence in our guide on how to identify potential cashflow problems.
Based on the answers you have given, you appear to have no customers in financial difficulty. If you do start to suspect customers of experiencing problems, take a look at the pages on signs of customers in trouble: hard evidence and signs of customers in trouble: soft evidence in our guide on how to identify potential cashflow problems.
Invoicing
Based on your answers, you have no critical issues when it comes to invoicing. You might still find it useful to read more in our guide on invoicing and payment terms.
Chasing payment
Using automated systems such as BACS or CHAPS can help reduce the risk of bounced, missing or lost cheques and have the advantage of providing payment certainty. Read about BACS payments on the BACS website - Opens in a new window and CHAPS payment on the UK Payments Administration website - Opens in a new window The impact of late or non payment on your business
Based on your answers, you have no critical issues on coping with the impact of late or non payment by major customers. If circumstances change, you may want to consider debt factoring, invoice discounting or credit insurance if you do not already take advantage of these strategies.
For more information see our guide on factoring and invoice discounting: the basics and how to choose an insurance adviser and present your risk.
Based on your answers, you have no critical issues on coping with the impact of late or non payment by major customers. If circumstances change, you may want to consider debt factoring, invoice discounting or credit insurance if you do not already take advantage of these strategies.
For more information see our guide on factoring and invoice discounting: the basics and how to choose an insurance adviser and present your risk.
You do not currently have customers who are insolvent or bankrupt, but this may change.
For more information, see the pages on signs of customers in trouble: hard evidence and signs of customers in trouble: soft evidence in our guide on how to identify potential cashflow problems.
Impact of change on your business
Credit management and accounting systems
Based on your answers, you do not have any critical issues with managing credit and accounting. You may still be interested to learn more about working to a budget and using accounting software, and how this can help your business. See our guides on budgeting and business planning and accounting software.
Based on your answers, you do not have any critical issues with managing credit and accounting. You may still be interested to learn more about working to a budget and using accounting software, and how this can help your business. See our guides on budgeting and business planning and accounting software.
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