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Stricter Credit Control Key to Improving Cashflow

Businesses are being urged to impose stricter cash and credit control procedures as a means of preventing late payments by a leading UK bank.

A recent survey by Yorkshire Bank has indicated that although the amount of time taken to collect overdue payments fell slightly from 52 to 49 days many firms are still worried about the detrimental affect the overdue payments could have on their business.

The survey revealed that 1 in 10 businesses believed that it may be forced to close or reduce levels of operations if customers took longer than 90 days to clear invoices.

Sharon Mappleback, North East regional invoice partner for Yorkshire Bank said:

“All businesses, particularly SMEs, depend on healthy cash flow to pay staff, buy stock and keep on top of their own invoices and bills.”

“Poor cash flow management can be one of the most critical issues that businesses face but we believe UK companies have listened to the advice to tighten up their systems and controls.”

Invoice finance lending in the UK and Ireland has increased by 7% annually, while in 2011 businesses using invoice finance saw an average 13% growth in sales.

Continuing Miss Mappleback said:

“Late payments and bad debts are a headache. They can affect the day-to-day running of a business and the sustainable growth of ambitious and profitable companies. We are seeing more businesses taking out credit protection alongside their invoice finance facilities to mitigate losses from bad debts.“

She is now encouraging businesses to take simple measures to ensure cash flow procedures are as effective as possible, such as agreeing payment terms and conditions upfront, or using incentives for early payment.

Concluding Miss Mappleback added:

“However, if late payments are a concern or are restricting cash flow, it is important to be rigorous about debt collection; recording conversations, possibly enlisting the services of debt collection agencies but ultimately looking for a swift resolution.”

Business and Enterprise Minister, Mark Prisk is currently leading a campaign to reduce late payments which can have a critical impact on businesses, particularly SMEs. The UK Government recently extended its Prompt Payment Code, a code of conduct for all businesses to adhere to when it comes to payment and treatment of suppliers.