Take Control of Your Debtors

Cash is tight at the moment.

For many it's an achievement to pay the staff on time every month. It's at time like this you're grateful for your customers but you wish they'd pay up more quickly.

It's a quirk of language that managing your debtors is called credit control. But whatever it's known as, it's a vital part of your business that you cannot afford to ignore.

Giving customers time to pay is standard business practice. But just because you allow them 14, 30 or 60 days doesn't mean they should get away with taking twice that long. I happen to know a local business that insists on paying on time, or even early, but they're in the minority. I also know plenty who'll only cough up once you've jumped several hurdles every month.

Here are some suggestions for sharpening up your credit control:

1. Set a target. Your accounting system should let you analyze what percentage of your debt is more than, say, more than 60 days overdue. Make a note of that number and set a target of reducing it by, say, 50% in the next month.
2. Don't be afraid. You're unlikely to upset someone by asking for money; don't be frightened of losing their business by being a little firmer in your approach.
3. Telephone your debtors. Emails and printed statements are easy to ignore; it's not so easy to overlook someone on the phone.
4. Take the name of the person you're speaking to and if they try to fob you off by saying the invoice still needs to be authorized, ask for the authorizer's name as well.
5. Make a record of every conversation including the date and time, who you spoke to, what they said the next steps were and how long it would take. Next time you call you can remind them of what they agreed to do.
6. Don't ignore the small debts because the older they get the harder they are to pursue.
7. Do it every day. If you don't have a dedicated credit controller make sure someone gives time every day to chasing debtors.
8. Check how you've done. Remember that target you set in step 1? Whether you achieved your target is not as important as whether you've reduced your debtors, because if you have, the process is working. What you need to do is keep at it.

There are plenty of other tips for debt chasing and feel free to add your own in a comment.

One final point. When you give a customer 30 days credit it means on the 30th day they should pay you, not start the authorization and payment process. Remember that and feel free to remind them of it.

Existing Customers or New Prospects - Who's More Important?

Neither. That's the answer to the question in the title above.

Or to answer it in another way: both. Either answer is valid because they recognise that existing customers and new prospects are equally valuable to your business.

I used to work for a global software company that sold systems costing hundreds of thousands of pounds. It operated a hungry, fired-up sales team that vigorously hunted for new customers. They pursued big businesses, persuaded them to sign contracts, and then handed the customer into the care of the service and support team.

Service and support were not sales people. They did a great job of making systems work and keeping them running because that was their job, but they didn't sell.

What was odd about this set up was that the software company made its money not from sales of new systems, but from ongoing support fees. It's also a recognised fact that it's easier to market to your existing customers.

So if the business made most of its money from customers who chose to renew their support agreements and they were easier to market new products to, why were the sales team so heavily focused on signing up brand new customers? With the result that existing customers sometimes felt like second-class citizens.

It's too easy for businesses to focus on 'new business' while neglecting existing customers. It's not deliberate, it's just the way it happens. A new customer is more exciting than an old one. But which is more valuable?

So I'll come back to the question in the title of this post. Existing customers or new prospects - who's more important? If the answer is 'both' then the next question is obvious: do you treat them both in the same way?

Do you?

Don't Pay Taxes - Legally

Are quarterly VAT payments causing you a major cash flow problem?

If they are, you may already be aware of, or even using, the HMRC's Business Payment Support Service (BPSS). Established in late 2008 as the recession deepened, this service is intended to help businesses spread their tax payments over time, reducing cash flow pressures.

If you've got this far without needing to use BPSS, well done. But the continued uncertainty of 2010 means you might yet have a need. So I thought you might be interested to hear how it's worked for others.

I took advantage of the scheme almost as soon as it was launched. I was working with two firms with VAT payments due in January 2009 and neither had the cash to pay. I called the BPSS and in both cases they agreed to the VAT payment being deferred into three monthly instalments. They asked very few questions and took very few details. It all felt remarkably informal, particularly given that I was talking to HMRC.

I used the scheme again at the end of the next quarter and once more it was easy to arrange. But this time they wanted some assurance, though only verbal, that they'd get the money.

I conducted an informal survey of the experience of other businesses through UK Business Forums. The feedback is that most businesses have received favourable treatment so far, but it does seem to depend on who answers the phone at HMRC's end.

One accountant reported that a client had two very different experiences on the same day. One VAT office insisted they spend time providing 12 months accounts and cash flow forecasts while the other office allowed a deferral of over £50k of VAT and PAYE with virtually no questions asked.

There are signs that HMRC are tightening up. If you're calling to defer your payment for the third or fourth time you'll probably find it harder to get what you want. Regular users of the service are being challenged about what other steps they can take to improve their cash situation. Some are being told that repeat calls will increase the likelihood of a VAT inspection in the near future.

HMRC originally intended the BPSS to be available for 2009 only. But in his pre-budget report last month the Chancellor announced it would continue for as long as necessary. On the other hand, the UK government needs all the money it can get and I'm sure it would like to reduce the one billion pounds it's lending to UK businesses through BPSS.

One of the UK's top accountancy firms, Wilkins Kennedy, believes the service is being wound down as the government tightens its belt. Director Anthony Cork, quoted on bytestart.co.uk, says businesses will probably need even more support as the economy picks up.

So if you're beginning 2010 with cash flow woes and you make VAT, PAYE or Corporation Tax payments, you should do all you can to exploit the opportunities for deferring these with BPSS.

But be prepared to make a good case - the reason why you need to defer and, more importantly, the reason why you're confident you can pay in the future. You might have to argue for a deferral, but at the end of the day BPSS is there to help UK businesses.

Recession-Beating Tales

This blog is featuring stories from ordinary people who've decided to become their own boss despite, or perhaps because of, the current recession.

The stories so far...

Green fingers grow a hobby into a business:
Helen's a winner at Gardening Scotland

Young mum learns lessons from business failure:
Gemma's fresh start in online retailing

16 year old girl becomes inventor and business woman:
Ruth takes a steady approach to success

New Zealand mum turns typing skills into her own business:
Fiona Wins with Audio Transcription

Bolton couple shelter beneath an online umbrella business:
Brolly success for Chris and Rebecca

A football coach aims to score with iPhone applications:
Craig's developing his own future

Two students ditch a toxic solution and find a better way of cleaning:
Adam and Amber launch a green clean business

Converting employee experience into a business:
Nancy's medical billing operation

Turning a passion for customer service into a going concern:
Brian answers the business call

Solicitor finds a niche role in the media:
Olivia wins a starring role in TV

A mother creates employment and an income for herself:
Trina makes her own success

A keen salesman finds himself in hot water:
David splashes out in Scotland

Marketing Manager turns redundancy into opportunity:
Debs does marketing services

An entrepreneurial tale from New Zealand:
Lenna finds keys to success

21 year old generates £28k from £3.69 in 6 months:
Matthew's story of serial success

Young graphic design talent goes solo:
Gemma's eye-catching new venture

A new business in training:
Ross takes a health and safety risk

Mum turns her hobby into a business:
Becky Spots a Dotty Opportunity

Where there's muck there's brass:
John Cleans Up in South Wales

Turning fashion sense into business sense:
A 2009 Start Up Story

If you'd like your story to be considered for inclusion, get in touch by sending an email. Or contact us through our Twitter account: @biz_oh.

Becky Spots a Dotty Opportunity

Here's another in my new series of articles celebrating businesses founded during the current recession.

This is the story of how a hobby became a business.

Becky Peabody, of Somerset, has always designed and made her own greetings cards. Ten years ago, following the arrival of her first child, Becky created a personal Christmas card combining her artwork with a family photo. She had 100 copies printed locally.

This became a tradition that led to a friend asking Becky to create a Christmas card for a small business. The opportunity for a larger print run, with its economies of scale, led Becky to start selling the card to others. So Dots and Spots was born.

With an initial investment of just £500 Becky has built up a range of unique and distinctively styled cards, pictures and gifts which she sells online and to a number of shops.

Getting into the market meant Becky had to approach a number of small, independent retailers directly and persuade them to take her stock. It was a thrill to have a first repeat order because it meant her creations were selling and soon other retailers were contacting her to buy stock.

Becky does not have a business background; she's worked for about ten years as a teacher and taken time out during her career to have her own family. In 2009 she took the brave decision to leave teaching to concentrate full time on Dots and Spots, which had a turnover in its first year of about £10k.

Leaving work has meant a cut in income for Becky and her husband, who has a full-time job but runs the Dots and Spots website. She's confident that business, and income, will pick up in 2010. Two agents now represent Dots and Spots products and she is hoping to participate in one or two trade shows. Turnover targets for the next year are around £20-30k and these appear realistic based on recent activity.

These are still early days for Dots and Spots. In common with most entrepreneurs Becky is investing a considerable amount of time and money (about £2k to date) in her business. She says that one of the main lessons she's learned is that "the trade element is the main 'earner' for the business and this is the area I really want to grow, but the retail provides a nice residual bit of cash, too!"

Visit their website if you'd like to know more about the Dots and Spots original and unique range of cards, gifts and pictures.

If you set up a business in late 2008 or 2009 and have a story to share drop me a line via email or make contact with @biz_oh via Twitter.

Customer Service - What's That?

True stories of poor customer service abound.

Email to customer from supplier of IT services: "We would like you to consider paying a fixed support fee of £150 per month instead of buying our services on an ad hoc basis."

Customer's reply to IT services supplier, sent one hour later: "Our records show that on average we pay less than £150 per month for your services so please explain the benefit of going to a fixed support fee."

IT services supplier's swift response to customer, sent minutes later: "We consider your response to be unreasonable. We offered you a fantastic deal and you turned it down, so our offer is now for a fee of £300 each month."

Yes, this really happened, in the course of an afternoon last week. No, the IT supplier is not a large, faceless corporation that can afford to upset people now and again. Both the customer and the supplier are small, owner-managed businesses. Needless to say, the customer is now considering sourcing an alternative support provider.

It's amazing how, even in a recession, businesses fail to understand the value of their customers or how to use communication technology effectively. In the situation I related above it's clear that the supplier wrote and sent their final message in haste and in anger.

Let this be a reminder to all of us - always pause before pressing the send button and consider how the customer will react. Because if you upset them you'll probably lose them, and if you lose too many you won't have a business at all.

A good tip to remember: use every engagement with a customer as a marketing opportunity.

Communicate to Succeed

Great communicators are more likely to be successful. That applies to individuals and businesses alike.

This post is prompted by an incident the other day. I won’t bore you with the details; it’s enough to say that someone used the wrong method of communication and, unsurprisingly, the message didn’t get through and the customer was upset.

We live in the communication age and we’re surrounded by an array of communication systems. I’m writing this post on a laptop in my car and even here my communication options include email, Twitter, mobile phone, and text. Not to mention good old face-to-face contact.

Despite our wealth of communication tools, or perhaps because of it, people often choose the wrong tool for the job.

So here are some tips, based on my experience, for using your communication tool box effectively.

1. Telephone – use this for urgent messages and when you need confirmation that it's been received and understood. It’s also one of the fastest ways to get your message across because it allows dialogue.
2. Email – great for sending messages that are not particularly time-sensitive, and it allows for lots of content where required. Ideal when you need to communicate with a large group in multiple locations.
3. Text - invaluable for short, clear messages that you can be reasonably confident of being picked up on quickly; either one-to-one or one-to-many.
4. Twitter - very similar to text messaging but online. But also very different from text messaging because tweets can be read by anyone if they're not direct messages or protected.
5. Face-to-face - use this when your need to deal with complex issues or negotiation. It allows for comprehensive communication including body language and opportunities for questions and answers.

This short guide doesn't cover all communication methods or situations, but if nothing else I hope it makes you think about the tools you use and how appropriate they are to different situations.

Timeliness and complexity are two fundamental issues when choosing how to communicate. It might seem obvious but experience tells me that it's not.

Next time you need to get a message to someone, particularly a customer, make sure you're doing it in the most effective way.