10 Simple Steps to
Improve Your Business Cash Flow
A Practical Guide to Improving
Credit Control and Cash Flow in
Your Business
Distrubuted by Payment Automation Network, Inc. Your Cash Flow Specialist
T: (800) 813-3740 F: (888) 600-2703
E: info@PaymentAutomation.net W: www.PaymentAutomation.net

CONTENTS
Introduction 3
Simple Step One - Do you Really 5
Know Who Your Customer Is?
Simple Step Two - Improve the 7
Odds
Simple Step Three - Why Your Terms 9
and Conditions May Not Matter.
Simple Step Four - The Quickest 11
Way to a Cash Flow Improvement
Simple Step Five - Its Not What You 12
Do, It’s the Way that You Do It.
Simple Step Six - Stating the Obvi- 14
ous
Simple Step Seven - Factoring In the 15
Factoring
Simple Step Eight - The Difference a 16
Choice Makes
Simple Step Nine - Time to Get 17
Tough
Simple Step Ten - Ten Top Tips 18
Conclusion 20
This guide is not intended to cover all aspects of credit management and does
not constitute legal advice. No liability will be accepted by Payment Automation Network, inc. for its
content.
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INTRODUCTION
Because you are reading this book, I already know an
important thing about you - you care about improving the cash flow
of your business. That’s something that we have in common for
starters. I also care about improving the cash flow of your business.
So Why Should I Care?
Good question.
I suppose the simple answer is that it is a passion.
I started my career in credit management over 20 years ago and
whilst that makes me older than I would like to be, it also gives me a
vast amount of experience.
My first career was in the legal sector. I qualified as a Legal
Executive specialising in collections.
This meant that basically I sued non paying customers for my clients.
Sometimes I would need to go to Court to argue cases, and
sometimes I didn’t but what I would try to do in all cases was get a
judgment against the debtor. That done, I would take enforcement
action, such as sending the bailiffs in or making a claim against the
debtor’s wages all with the overall aim of getting my client’s money.
And that is the answer to why I care - collecting cash is my passion.
During my career in law, I started to get interested in what
happened to debts before they got to me and why they went
uncollected. I was enthralled by subjects most people would find dull
such as reconciliations and the joys of terms and conditions. I had to
make a decision - qualify as a solicitor or have a career change - I
don’t need to tell you which way I jumped.
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My first stint in credit control was very hands on. I then progressed
through the ranks to eventually lead a team of 20 credit controllers who
were responsible for collecting a 100 million pound turnover. You could
say that I have done it all!
But what I found was that whilst my corporate role was busy and
rewarding, I didn’t get the buzz collecting money for a multi national
company that I did for smaller companies.
I also realised that SME’s were at a disadvantage by not having access
to top quality credit management advice, support or services either
through lack of resource or funds. Debt collection companies existed
for hardcore debts, and large faceless companies existed offering ex-
pensive outsourced credit control or factoring but there was a huge
gap in the middle and so, Entire Credit was born to provide
an entire range of credit management solutions to SME’s just like you.
You don’t need me to tell you that cash flow is key to your business’
survival but I just may be able to help you achieve it.
I hope these 10 Simple Steps will be a good start.
Managing Director
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SIMPLE STEP ONE
Do you really know who your customer is?
This might seem like a silly question, after all you may have dealt with
your customer for a long time. They may even pop in to your business,
or you may have lunch with them from time to time.
But what is important in credit control is what legal entity they are.
This means finding out if they are a partnership, sole trader or limited
company. They may a limited partnership, a charity or an individual.
Either way, you really should find out.
What you are probably asking yourself is why is this so important?
Well, the simple answer is that if you need to check their credit, or, worst
case scenario, sue them, this is vitally important.
Did you know that if your customer is a limited company, even though
he may appear to be a one man band, if he doesn’t pay you his shiny
new Mercedes is off limits to the bailiff unless its owned by the company.
Or that if you are dealing with a partnership, all the partners are liable
for your debt, even if you have never met them? Or did you know that
you can’t credit check an individual without their consent?
A simple form that captures these details at the beginning of a trading
relationship can save you $100’s if things go sour.
So what do you need to find out?
A good start would be to get the following:-
 Full name of customer.
 Trading style of business e.g limited company, sole trader. Ask for
the company registration number if applicable.
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 Trading address including postcode. Get a billing
address if this is different from the trading address. If the company is
a registered company, ask for the registered office address if you
think it’s not a question too far, but if it is don’t worry, this is easy to
find out from Companies House.
 Your customers contact name and title if you are dealing with a
business.
 Your customers date of birth if you are dealing with an individual.
 Contact numbers, e mail addresses and fax numbers.
 A signature agreeing to your Terms and Conditions and consenting
to a credit check if credit is requested.
Items that it would be good to have as well are:-
 Headed paper. Believe it or not some customers don’t know what
their legal entity is.
 Website address.
 VIN number
 Bank details and/or trade reference details.
A New Customer Application Form is the best way to capture this infor-
mation.
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SIMPLE STEP TWO
Improve the Odds
Like betting on the horses,
giving credit can sometimes be
a bit of a gamble. The best
way to improve your chances
of recovering your cash is to
only back the favourites.
Of course, like betting, no
invoice on credit is guaranteed
to be paid but you can go
some way to improving the
odds.
Consider this scenario, a complete stranger comes up to you in the
street and asks you for $20.00. He promises to bring it back in 30
minutes. Would you lend him the cash?
Would your decision be different if he was a good friend or if he
asked to borrow $1000. What about if he had holes in his shoes or
had turned up in a Rolls Royce? Giving credit in business should go
through the same reasoning process.
Now you know who your customer is (having implemented
Simple Step One) you can carry out a credit check. This is a report
on the credit worthiness of a company or individual. Credit
Referencing companies use various systems to grade companies
and individuals on their ability to pay back credit. They give a
figure or credit rating that they would consider a fair risk and will
highlight any adverse reasons for not granting credit such as
previous insolvency proceedings.
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But aren’t credit checks expensive?
The simple answer is that they can be. This guide aims to provide practical
advice to your business and for some businesses to credit check every
customer is just not feasible. As well as the manpower involved in
conducting the credit check, the fee of around $20.00 per check could
be prohibitive.
The best advice is to consider your risk. If you are selling a $20.00 item then
clearly you have little to lose if the invoice goes unpaid. However a
$20,000 order may have a bigger impact. One suggestion is to think
through the impact on your business if an invoice goes unpaid in terms of
your purchasing power, paying your staff etc. When you reach a value
which you feel the business could not bear, then that’s your credit limit.
Bear in mind that a customer who buys a lot of small items on credit could
have a higher level of exposure than one customer with a single high
value order. Also customers who pay late every month could have 2 or 3
months unpaid pushing up their credit exposure. Also bear in mind that
more than one customer can default at a time when assessing your risk.
Another way of improving your odds is to shorten your credit
period e.g 30 days to 14 days, or to ask for full or part payment on
account. This can be seen by many businesses as ’sales prevention’ but if
the company doesn’t have a good credit rating, you may make a sale
where you would otherwise not have done so.
Other options are to take up trade references and to keep your ear to the
ground with your competitors. A customer ‘doing the rounds’ may have
been refused credit by a more savvy business. Requests for increase in
credit can be a warning sign as could the customer extending the time
taken to pay. You will probably not spot these signs unless you are
monitoring your customer’s activity so this is crucial. Credit checks can be
carried out at any stage so if you are worried, check out the customer
before you get burned.
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SIMPLE STEP THREE
Why Your Terms and Conditions May Not Matter.
Of course having good Terms and Conditions in all business dealings is
vitally important. These will protect your business in a variety of ways.
From a credit management point of view you should have terms that
deal with:-
 Price - if you are unable to list these in your standard Terms and
Conditions make sure they are clearly stated on any contract
paperwork or refer to a medium where they are present (e.g as
stated on our Website)
 Delivery or supply details - Clarify when our product is to be
despatched or how and when your services are to be supplied if
at all possible.
 Payment Terms - In the absence of specified terms Late Payment
Legislation implies payment as being 30 days net. It is good
practice to specify your payment terms in any event, and
essential if you wish to rely on shorter payment terms.
 Interest - You can specify an interest rate to be applied in the
event of late payment.
 Debt Recovery Charges - State that compensation for these will
be claimed if action is taken to recovery the debt. You can ask
for these on an indemnity basis.
 Complaints or Quality Issues - State the policy for dealing with
these and how disputes will be resolved.
These are by no means comprehensive Terms and Conditions and a
Solicitor would be able to advise you on the best terms for your
business.
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So why, after all this work getting your terms and conditions right, might
they not matter?
Simple. They might not be incorporated into the contract.
In order for Terms and Conditions to apply you need to get them to your
customer before the contract is made. Putting them on the back of your
invoices is a bit like locking the stable door when the horse has bolted.
Clearly include your Terms and Conditions on your quotes, order forms,
website and other pre deal documents. Get your customer to confirm
acceptance of these when the quote is accepted or the order placed
and they should apply. Put them on the back of your invoices by all
means, as a reminder of what was agreed, but don’t rely on this as your
only method of getting your Terms and Conditions across.
Also keep an eye out for quotes or orders placed under the customer’s
own terms and if a contract is made by accepting this ‘counter-offer’
their terms will apply, not yours.
Of course, on a practical level, your customers, and indeed you, may not
be aware of the significance of when Terms and Conditions are given to
the other party. It really only becomes an issue if you need to go to court
for recovery of money or specific
performance of a contract and in
some contracts the value is so small,
that it is not practical to go to these
lengths. But, if you are aware of the
significance of your Terms and Condi-
tions applying to the contract, then if
you have a big deal in the offing, or a
feeling that the deal may not go with-
out a hitch, then you can make extra effort to ensure that in the event of
a dispute your terms will apply.
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SIMPLE STEP FOUR
The Quickest Ways to a Cash Flow Improvement
These steps are really simply to implement, but very few businesses do
them on a regular basis.
Our first suggestion is to invoice promptly.
If you despatch goods and then invoice a week or so later, or provide
services and invoice at the end of the month, you are already potentially
1 - 3 weeks late in asking for your cash. Add to that payment terms of 30
or 60 days plus the fact that some of your customers will probably pay 14-
30 days late you are looking at a potential delay between you providing
the goods and services to collecting the payment of over 95 days. That’s
3 months and in an economic downturn that could be catastrophic to
your business.
Our second suggestion is to review your payment terms.
You may offer standard payment terms of, say, 30 days which for your
business may be in line with your competitors and you may consider
asking your customers to pay earlier would frighten them off. If that’s the
case then fine, make sure your invoice is sent the first day that you can.
However, there may be certain products that you sell that you could get
payment for on purchase, or within 14 days and, if so, amend your
trading terms to get paid earlier.
Our third suggestion is to offer an early settlement discount.
It may seem odd to knock something off your invoice (say, 2.5%) to
encourage early repayment but consider the interest that you could earn
with that money in your bank and the amount of time spent chasing bills
and do the maths. If you get paid within 7 days it could just be worth
doing. A word of caution though - be strict with the deadline.
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SIMPLE STEP FIVE
Its Not What You Do, it’s the Way That You Do It.
This step deals with getting in place an effective credit control system
that works for your business.
A lot of business owners worry about chasing their customers for payment
and upsetting them, but the truth is that nobody would expect a bank to
lend them money without asking for repayment, and your business
dealings are no different. Customers expect to be chased for money.
However, there are ways to do it that make your chasing efforts more
effective.
Some businesses find it easier to chase if the personal element is
removed. Its difficult to focus on the next sale when you are aware that
invoices need chasing from that some customer. Small businesses often
have limited resources available to chase accounts so some serious
thought needs to be given as to how to achieve this.
Once the decision is made, implement your system.
If you opt to chase in house we would suggest the following system.
Firstly, go in with a gentle reminder and do this as soon as the invoice falls
due if not just before. Invoices do go missing and your customer may
genuinely have not received your account. They won’t know this unless
you remind them. This reminder can be by letter, e mail or a call -
whatever works for you and your customer. The important thing is to do it.
The second reminder should be issued about 14 days after the first one
but this will depend on your terms. This can be a little tougher. We
suggest that if you have offered discounts or special deals dependent on
payment within terms that you mention these may no longer apply due
to late payment.
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We also suggest that you use different communication methods when
chasing. Some customers will ignore all written communications, but
will be unable to ignore a phone call or vice verse.
The third reminder, issued at around 30 days overdue (again your
terms will have a bearing on your chasing techniques) can be
forceful. Payment is now seriously overdue. Withdraw any discounts
or apply any administration charges for late payment. State that you
will be instructing a Debt Collection Agency and that their costs will
be added to the debt or state that you intend to rely on Late
Payment Legislation, whatever your Terms and Conditions state. Try to
call and write if you can. Give 7 days to comply.
If payment is not made then, you should consider your options. Can
you hold further orders and stop them going out? Do you have any
leverage you can use to get paid? Should you instruct a Debt
Collection Agency to send a final demand? The important thing is to
take action and keep the pressure up. Often businesses ‘give up’ at
this stage and delay will cost you money in the long run.
The two important things to remember when chasing for money is that
you need to
 Be consistent. Customers recognise chasing patterns and will
often pay those businesses who chase in preference to those
who don't.
 Chase promptly. Older debts are harder to recover. Delays in
chasing payment risk your customer getting in to more debt with
you and getting in to debt with other businesses and ultimately
going under or disappearing. If they are not paying their bills
and there is no dispute between you, the chances are they are
not paying anyone else either. If there is money to be had, you
need to be first in the queue.
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SIMPLE STEP SIX
Stating the Obvious
This simple step is about harnessing the usefulness of statements.
A lot of accounting packages used by small businesses (Sage is one
example) have a statement option where you can run statements of
accounts for all your customers.
This can be a fairly automatic process you could run as, say, your end of
month procedure. But why do it?
 Some businesses only pay on statements. If they do a lot of business
with you, they may need to reconcile the account monthly before
paying you. They won’t be able to do this without a statement.
 If invoices haven’t reached your customer, the statement may
prompt a copy invoice request before you even send the first
reminder.
 They are a gentle way to remind your customer about your invoice.
 You can use them in some cases as marketing materials for letting
your customer know of forthcoming special offers, for example.
 Some have remittance slips which make it easier for your customer
to pay you. At the very least they should list the ways in which your
customers can pay you and spell out any early settlement discounts
that may be available.
 They help to reinforce the fact that you are a business who chases
so should be paid in preference to those who don’t.
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SIMPLE STEP SEVEN
Factoring in the Factoring
This step encourages you to consider the impact that factoring or
invoice discounting may have on your cash flow.
Clearly the aim is to improve this. You submit your invoices when you
raise them, you get paid about 80% of the value and you can use the
cash to continue growing the business. For a lot of businesses this is the
only way they can access finance for their business.
But what if you are to retain responsibility for your credit control or
choose to do so as a cost saving exercise?
Unchased bills may result in a clawback if the remain unpaid at 90 days
or beyond so it is even more important for you to have effective credit
control in place.
If you have effectively spent the money before you have collected the
debt, then if you don’t collect the debt at some point in the future you
are going to have to repay that money and that is generally to the
factoring company. Also, don’t forget that 20% that they don’t release
to you. Its just as important to your business to collect that too - after all
there are fees associated with factoring and you have got to pay those
out of your released finance too.
Also, if you want to stop factoring at some point, then your business will
only survive through cash you collect yourselves so it is vital to get your
systems in order as soon as you can.
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SIMPLE STEP EIGHT
The Difference a Choice Makes
We are all different and all make choices in our everyday lives that suit us.
The same is true of settling credit.
Some customers like to pay all their bills by cheque. Others by BACS and
some by credit card. Some customers
have PayPal accounts, or don’t have
a credit card. Others like to pay their
bills by standing order every month.
This simple step encourages you to
consider the methods by which you
accept payment and the channels
available to make that payment.
If you have a website, then chances are you take payments by credit or
debit card. But other than by visiting your website, do your other
customers know this? How do you communicate the payment choices to
your customer presently? You may be surprised to realise that customers
who don’t buy from your website don’t know that you take credit cards.
Alternatively you may not take credit cards because you consider them
too expensive. But what is the true cost to your business of not taking
cards? Would the costs of taking cards be offset by having the money
quicker, or in some cases at all. In an economic downturn a company’s
credit card may be the only way they can pay you quickly that month.
Consider how flexible your business can be with offering different
payment options and channels and how it may work for you in terms of
your cash flow.
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SIMPLE STEP NINE
Time to Get Tough
Its is important to the growth of your business to recognise that at some
point you have to get tough with your non payers.
So, when is this point?
We consider that if your reminder three is not complied with then the
time is ripe. For you, it may be slightly later than that but the truth is that
the sooner you get tough, the more chance you have of collecting your
money.
Once you have made the decision to get tough - what next?
You have several options:-
 Instruct a Debt Collection agency. Many agencies operate a no
win no fee policy and charge a percentage (usually around 10%)
of anything they collect. They will try to collect your debt without
resorting to legal action wherever possible and some agencies do
offer a legal service should you need it.
 Instruct a Solicitor. They will generally send a demand letter
followed by legal action. Very few operate on no win no fee so
there will be some cost associated with this and most will not carry
out much pre legal collection effort before they issue court
proceedings.
 Issue proceedings yourself though the County Court. You can look
at Money Claim Online or get information on how to do this from
your local County Court Office.
 Write the debt off. Sometimes this is your only option either be-
cause the customer has gone under or due to economics.
Whatever option you choose, be decisive. Then move on. Dwelling on
non payers will erode your business focus and could cost more than the
debt itself.
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SIMPLE STEP TEN
TEN TOP TIPS
Start making an immediate difference to your cash flow by
implementing these ten top tips:-
1. Put your prices up. A few percent increase may not register with
your clients but across the board will have a big impact on your
business.
2. Refresh your chasing letters. Review what you are saying now that
you have read our steps and you might find you should be saying
something else.
3. Outsource your credit control. Let someone else do it for you. Its not
as expensive as you think and will free up your time to get selling.
4. Have a sale. Shifting more stock will bring in more cash. Try
targeting old customers who haven’t bought from you in a while to
see if you can start a trading relationship again.
5. Reduce your purchases. Buying less stuff will bring leave you with
more cash. Try getting the same things cheaper by switching
suppliers.
6. Change your bank account. Are you getting the best deal on
interest payments and bank charges from your bank? Look around
and you may find you can make a big difference to your cash flow.
7. Use credit yourself. If you give credit, but don’t buy on credit then
see if you can get some credit yourself. Provided you manage it
properly it could help unlock some cash.
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8. Prepare a cash flow forecast. This is easier to do than you think and if
you know what is coming in and roughly when you need to make
payments will be able to budget better and avoid potential bank
charges or late payment charges being levied against you.
9. Use Late Payment Legislation to your advantage. Its there for a
reason so start using it.
10. Have a clear out. In an economic downturn the only way to survive is
to be lean and mean. Start with your ledger and pass those old
debts to a debt collector to see if they can collect them. Move on to
other areas of your business such as marketing and stock control and
get in shape to survive.
We regularly give advice to small
and medium sized businesses on
how to improve their cash flow.
Visit the Payment Automation Network
website to get our
get more information or simply give us
a call and we will do all that we
can to help you to get your cash
flowing. Call Toll Free (800) 813-3740
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CONCLUSION
We hope that you have found this booklet useful and that you start to
implement some of the 10 Simple Steps in your business soon.
You may have questions or feedback or want to explore some of the
Steps given further. If so, please contact us.
Alternatively, if you want to instruct us to carry out any credit
management service on your behalf, we would love to hear from you.
Our services include:-
 Nationwide Medical Billing and Electronic Claims Filing.
 Profit Recovery Service - We offer a range of debt recovery services
including recovery fees as little as 5%.
 Preauthorized Checking - Automatically draft your customers
bank account.
 Checks By Phone - Collect payments by phone.
 Follow Up Marketing - Get referrals, have better customer retention
by automatically sending them greeting cards and flyers.
 Billing and Invoicing Services - We automate the process for you.
Our contact details are:-
Payment Automation Network, Inc.
1625 E 72nd Street, Ste 700-142
Tacoma, WA 98404
T: (800) 813-3740
F: (888) 600-2703
E: info@PaymentAutomation.net
W: www.PaymentAutomation.net
Copyright 2009 © Payment Automation Netowrk, Inc. All rights reserved.
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