By David Bloom, co-founder and CEO, fd unlimited

In business it often helps to look at issues through the filter of things you can control and things you can’t control.

This perspective is the foundation to good working capital management and I will highlight a number of simple effective steps you can control to improve your working capital on the sales cycle.

Let’s start with credit terms to your customers: you can control the payment terms you set with your customers but you can’t control when they pay you. “Just because I can set my payment terms doesn’t mean that big blue chip will pay when I ask so why bother” I hear you heckle from the back. Fair point but if you state your credit terms as ‘30 days from date of invoice’ instead of ‘payment due on invoice presentation’, you are automatically penalising yourself 30 days. Ask yourself why it can’t be the latter and if there’s no good reason —e.g. an industry standard - go for it.

Send invoices out as soon as possible: wherever possible, you should not wait until the end of the week or month to invoice for work. If you are in a position to invoice, do it promptly. If you are sitting on an invoice for 5 days and your terms are 30 days, that’s a total of 35 days lost when that cash could be put to better use in the business.

Send invoices to the right contact: So you’ve got your payment terms down to a few days and you’re raising your invoices at once but who are they going to. If your sales guys are forwarding them onto their contacts at the client, you are now in the hands of that person at the client and relying on them to forward the invoice to accounts for processing. This is outside of your control and a dangerous place to be. The guy goes on holiday or doesn’t get to the email for 10 days. It misses the client’s payment run and your stuffed for another 30 days. Make sure you know exactly who the invoice should be addressed to and ensure it gets straight to them. It’s far better for them to get approval from the client representative than it is for the rep to approve and send into accounts. Addressing the invoice to accounts payable is normally best. Even better, build up a relationship with the accounts payable clerk at your biggest clients. Even Godzilla in Accounts Payable loves a good schmooze and may bend the rules for you from time to time.

Collect, collect , collect: If you’ve got £1m sitting on your ledger made up of a large number of balances and more than 50% is past due by more than 3 months, you are scoring a big own goal. Managing your aged debtors is a top priority task and one that needs to be managed. If you don’t have the time, get somebody in to do it or outsource it. In the above example that’s £500k out there in your client’s bank account and it’s yours. Bring it in. The older it gets the harder it is to collect and the more chance it becomes bad.

If you need help and support in managing your sales cycle from raising a sales order through to cash collection please get in touch at dbloom@fdunlimited.com

fd unlimited provides high calibre and cost effective part-time, interim and full-time Finance Directors, Financial Controllers, Finance Managers, Board Advisors and Back-office Services to dynamic companies with aspirations for growth. Our network allows us to match your need with the right resource, in a matter of hours if needed. Find us at www.fdunlimited.com

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