When times are tough, as well as making sure you get in all the cash that’s owed to you, and managing your cash flow, you also have to deal with your creditors. Unless you manage and pay for your taxes and procurement efficiently, nasty things can happen. If you have clear business policies for managing creditors that you follow consistently, you are less likely to reach crisis point. Even if you do run into cash flow problems, they will be easier to deal with if you have set the right priorities and kept up good relationships with your suppliers.
Get Your Priorities Right
Enlist the help of your bookkeepers to decide which creditors are most important to you. If you have outstanding loans or anything on hire purchase, your lenders will probably top the list. If you rent your premises, your landlord will be up there too, as well as any providers of the essential services needed for your business to operate.
Other creditors likely to penalise non-payment heavily include HMRC which has to be satisfied at the right time on PAYE, NIC and VAT as well as corporation tax and personal tax. Don’t forget your local authority’s business rates.
Next on the list are those specialist suppliers without whose goods you cannot operate. Sadly for suppliers of small consumables that you can always purchase elsewhere, they will usually be placed last.
Every business should have a general policy on payment, such as making a batch of BACS payments or signing and sending cheques on a certain date each month. Your bookkeepers will tell you that you still have to maintain some flexibility though, so that these payment procedures can be adjusted and one-off payments made where necessary.
Making time to keep in touch with suppliers is as important as talking to your debtors. You need to be sure they are aware of your payment policies and are in agreement with them, or that other arrangements have been made to accommodate them. Staying in touch can have advantages for you: if they understand your business, they may be able to make helpful suggestions you haven’t already considered. Agreements with suppliers can have mutual benefits if both parties communicate and understand each other.
Market testing is something you should do periodically. If you discover alternative suppliers who offer better terms, check if your current ones will match them or improve their own terms enough for you to want to remain with them. Don’t forget that your outsourced bookkeepers probably know of the best suppliers of commonly sought items.