If you pay me then I can pay them...

Murray Sellars 💡

General Manager @ BLE Lighting and Power | CONNECTION REQUESTS WELCOMED | IoT Expert | Early Adopter | Mentor | Coach | Vision

Published Feb 9, 2015

I am not an economist! (So don't expect a long dissertation regarding fiscal constraints, etc.) This is just some musing about money triggered by the recent news stories regarding unfair trading practises in the supermarket industry and the knock on effect it has on their supply chain.

Cash Flow is defined as:

A firm's cash flow is the movement of cash in and out of the firm in the form of payments to suppliers and collections from customers. Cash flows typically arise from three sources: operations, investing, and financing.

There are a lot more complicated definitions out there! For the purposes of this article let us simply consider this operational cash flow and the fact that the money flows in and out! If it does!

Recent research has shown that some companies operating in the food manufacturing sector are having to accept the fact that they will only be paid after 120 Days! This flies in the face of the recommendations made in the The Late Payment of Commercial Debts Regulations 2013. What worries me is that many companies don't seem to realise that Cash Flow is tighter as the economy improves, a fact borne out in the rapid increase in insolvencies in the Food Manufacturing Sector increasing by 28% on the back of total growth in the sector of around 3.7% annually since 2009. (14% Total Growth) Why?

Simply put, the increase in sales (and an increase in stock-holding to maintain service levels) results in more Working Capital being required. Money that is not that easy to come by if the need is not identified a long time in advance and the unforeseen consequences of growth have brought many a small business crashing down.

Because this problem is caused by multiple factors its solution often requires an approach that works on a combination of securing finance, negotiating more favourable terms with suppliers and rationalising product ranges with a view to improving stock turn ratio. There is however one little tactic learnt over years of experience that can be utilised to your advantage when chasing payment on overdue accounts with your customers and it is simply this.

Stop dealing with the accounts department! Get a named contact there.

And take time to build a relationship with that contact. Seek to understand the challenges they are facing and offer them a level of service that they will seldom have experienced. Remember their birthdays. Thank them for payments as sincerely as your sales department would thank their buyers for an order! Help them with missing invoices and proof of deliveries as cheerfully as you would help a friend or colleague. And don't forget to get them a little something at the end of the year to show that you appreciate dealing with them.

Implement this over time and watch those debtor days improve at the same time as they truly buy into the old mantra;