Financing small businesses

Financing small businesses is mostly done with loans, which can be easily availed if you have all the required documents ready.

Bank loans are the most common, provided that you meet all the requirements. Usually, the rate of interest of bank loans is very high, the amount of funds you can get is very limited. That is why, most of the small business owners need to be aware that there are other options

             1.       Factoring coupled with an active credit control process

 Factoring is a financial transaction whereby a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. In "advance" factoring, the factor provides financing to the seller of the accounts in the form of a cash "advance," often 70-85% of the purchase price of the accounts, with the balance of the purchase price being paid, net of the factor's discount fee (commission) and other charges, upon collection. In "maturity" factoring, the factor makes no advance on the purchased accounts; rather, the purchase price is paid on or about the average maturity date of the accounts being purchased in the batch.

2.       Invoice discounting coupled with active credit control process

Invoice discounting is a form of short-term borrowing often used to improve a company's working capital and cash flow position. Invoice discounting allows a business to draw money against its sales invoices before the customer has actually paid. To do this, the business borrows a percentage of the value of its sales ledger from a finance company, effectively using the unpaid sales invoices as collateral for the borrowing.

Although the end result is the same as for debt factoring (the business gets cash from its sales invoices earlier than it otherwise would) the financial arrangement is somewhat different.

    3.       Asset Based Lending

       In the simplest meaning, asset-based lending is any kind of lending secured by an asset.

There are other options the above are just a few. If you would like more information please give Liquid Recovery a call on 0844 811 9463 or email info@liquidrecovery.co.uk

Worry only about the things that are in your control, the things that can be influenced and changed by your actions, not about the things that are beyond your capacity to direct or alter.

One of the main things in any business in your control no matter how large or how small you are is to get paid on time.

Many people believe that they will lose their customers if they chase them for payment. This is a false belief.

1.       If you tell your customers that you are incorporating a credit control system your customer will see you as a more professional body and  will understand when you chase them for the outstanding payment that it is part of the system.

The difficulty lies in when you are a small business and you deal with the day to day operations and sales. If this is the case see if you can get someone else to make those phone calls for you, or send a generic reminder email.

Remember the customer has taken your goods or services and is expecting to pay, they usually just want to see how long it will take before they have to make payment.

So if you are worried about cash flow and are not getting paid on time – this is one of those things that you can influence and change by the actions you take within your business.

Setting Up a Credit Control System

Mismanagement of cash flow is the single biggest reason that small businesses go under. Therefore, a good credit control system is an essential part of any business' accounting procedures. Maintaining consistent cash flow, avoiding bad debt and minimising late payments are essential for survival. Use the following checklist to set up a system.

Things to do

1. Set up a detailed credit control system

It must allow you to identify

·         Invoices that have been raised,

·         sent to customers

·         Paid

·         Need chasing

·         Train several people on the system and test it thoroughly.

2. Credit-check your customers

To do this, you can approach their bank for a reference; use a credit reference agency; or ask their other suppliers. Establish how solvent the customer is and whether they are likely to have any problems paying their invoices on time.

3. Decide on your general payment terms

Most importantly, decide on a payment date. Bear in mind that new customers should only be given a short time in which to pay. Go through the terms with each customer.

4. Send invoices promptly

Try to send all of them out the same day as goods are sent or delivered or service provided. Make sure the invoice is sent to the correctly named and titled person, at the right address.

5. Start an automatic reminder procedure

Flag invoices that are due; Phone, to chase up payment.

6. Appoint a 'debts person'

This should be a trusted employee in charge of following up bad debts. They should keep a record of all calls and letters sent. Remember you can charge interest under the Late Payment of Commercial Debts legislation.

7.  Have a stop list for late-paying customers

Circulate this list to all appropriate employees to prevent further credit or goods being supplied. Inform the late payer that they are on the list.

8. Organise a sufficient overdraft

You should have enough overdraft to cover the worst possible periods of cash flow.

Best practice

• Educate yourself/your staff with credit control training.
• Employ the services of a credit management consultant at least once every year to see if there are improvements you can make.
• Keep talking to debtors. Don't lose your temper with them, but make it clear you are prepared to take debt recovery action if they do not settle the invoice.

Predications for 2012

 HAPPY NEW YEAR all the best for 2012

Predications for 2012

As a business you can make your own predications. In order to develop and build your business you require systems and processes.

Have a efficient credit control system and improve your cash-flow.

How does this work?

1.       Have a person who is willing to speak to customers do the credit control.

2.       Ensure that you have a default diary in place to chase late payers immediately

3.       Do not allow them any leeway far too often we hear from our clients that they allowed their customers time to get paid from other people in order to allow them to get paid and the next thing you know 6 months have gone by.

4.       Be sure to draw a line in the sand and know when the outstanding amount has become a debt

5.       Chase the customer as soon as possible when payment has not been made on the promised date.

By ensuring you are getting paid on time allows your business to focus on growing.