All the basic principles of cash flow and credit management are even more important in times of uncertainty and change, and with Brexit looming, businesses are certainly in for some challenging months ahead.
So, what can you do to prepare for Brexit specifically?
Firstly, address some basic questions. For example:
- Do you know what your customers’ plans are post-Brexit?
- Will larger businesses you supply maintain their headquarters in the UK?
- Do you have contracts in place that commit to reasonable payment terms into the future?
- Do you have a system in place to ensure that you notice and can react if, as a result of a company’s reorganisation, you start receiving orders from a different legal entity?
You should also consider whether businesses will be cutting back on the goods or services you supply, and if you export or import goods or services, have you considered the impact of exchange rate movements on your business? Have you calculated the impact of a drop in the value of the pound on your bottom-line? Review your budgets and cash flow forecasts to ensure you can cope with the adverse impacts of any exchange rates movement.
Crucially, have you made sure you have access to short-term finance if you need it, bearing in mind that banks might become more cautious as a result of Brexit?
What can you do to improve your cash management generally?
As well as these specific questions, it is worth reviewing your current approach to managing cash flow and ensuring you follow best practice credit management. Stay close to your customers and talk to them so you know what their plans are, and if they might affect your trading relationship with them.
Do you have a systematic process for ensuring invoices are cleared for payment on the due date, and for following-up immediately if they are not? Do you similarly have systems in place to ensure you meet customers’ requirements when you invoice, and deal promptly with any disputes that are raised?
Make sure the agreed payment terms are documented and agreed into the future so you are protected against terms that might subsequently be imposed. Check their standard payment terms on the Prompt Payment Code website (assuming they are a signatory) or, for a ‘large company’, on the Duty to Report portal.
At a very practical level, include these words on every invoice:
- ‘We will exercise our statutory right to claim interest (at 8% over the Bank of England base rate) and compensation for debt recovery costs under the Late Payment legislation if we are not paid according to our agreed credit terms’
Make sure you also print your terms and conditions on the back. You can charge interest and compensation without mentioning it on the invoice but it helps to let your customer know you are serious about expecting payment.
Never be embarrassed or afraid to ask for money that should rightfully be in your bank account. If your invoice is disputed for any reason, fix the problem as quickly as possible so the excuse not to pay is removed. If payment becomes overdue, raise an invoice for compensation and interest, and if the invoice still remains unpaid, be prepared to use an expert third party to assist you in collecting payment. The sooner you do so, the greater the likelihood of success and never just hope payment will arrive soon.