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How to free up precious capital

It's hyper competitive out there at the moment. Profits are thin on the ground and cash is in short supply. Over 52% of small businesses in the UK suffered falls in profits in 2009. With the banks reluctant to lend it's important that businesses squeeze every last ounce of cash out of their system. Liquidity allows your organisation to invest, develop and move forward.

Making sales is tough and these days getting paid is even tougher. A recent survey by The Federation of Small Businesses reported that (rather unsurprisingly), it's big businesses that continue to stall with 34% of private sector payments being made late. Less expected was the news that UK central Government (31%), Government agencies (30%), EU institutions (30%), NHS (29%) and local authorities (25%), despite promises to the contrary, all put the pressure on small business through late payments. With belts set to tighten significantly over the next couple of years, late payment will become more and more of an issue.

In many cases business owners are having to use their own savings, credit cards, use their overdrafts and even take loans from friends and family to keep things on an even keel, to pay tax bills, wages, important invoices. If they looked a little closer to home though, often they would see that the money they need is already in the system locked up in outstanding debt and overdue payments. 

Effective credit control is certainly one of the quickest and easiest ways of unlocking money in the system. Some organisations have even taken to offering commissions to their credit controllers much in the same way as sales staff are incentivised.

There are other things you can do to help with outstanding debt or defaults. As well as factoring and confidential invoice discounting, as part of your debt recovery toolkit you may want to take a look at including a Romalpa Clause in your sales terms. This retention of ownership agreement means that that ownership of goods does not pass to your customer until payment is made in accordance with the terms of the contract. In the event of your customer going bust you are legally entitled to take back possession.


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