Implementing Creditors Benchmarking
The Creditors Benchmarking measure refers to the average number of days it takes to make a payment by a business. While there is a temptation to delay payment for as long as possible to maximise working capital and assist cash-flow, especially if a business’ Debtors are slow in paying; but this is not what the best small businesses do.
When you delay payment of your invoices, your business screams unreliable. Constantly late paying may see your business credit put on hold, credit limit reduced or even cancelled. Be careful how you play with other people’s money. With the spread of social media and local networking meetings your business reputation can be tarnished quickly and eventually make it’s way to your customers.
Reliable small business owners make sure that their creditors are paid on time if not just before. This creates and builds on the trust be given to you by giving you credit terms in the first place.
If you are working on credit, ensure that your stock turnover is fast and that the ability to pay for your stock purchases happens just after you are able to stock and sell the product. With modern technology and rapid delivery times, there is no excuse for carrying a huge stock level and turning it over slowly. Stock existing past your credit terms is stock you have to pay form out of your running cash-flow and has not yet had a chance to make any profit for the business recouping your running expenses as well as cost of goods.
How long does it take you to order and receive stock?
How quickly do you turn over that stock? If your stock is sitting, investigate the reason – incorrect product lines, pricing, marketing and over ordering are common mistakes made in business which rapidly erode your cash-flow.
What can you do about ensuring your Creditors are kept happy?
- Pay your accounts before or on the due date?
- If you are going to be late, ring early and explain why – follow up in an email or writing and then honour the new agreed payment date
- Review your product lines – let stock reduce on the slow lines, order them at lower limits and in smaller quantities
- Piggyback local marketing campaigns on local media to move out popular lines
- Make sure your pricing represents your point of difference and an acceptable market price
- Revisit and set new realistic re-ordering procedures – triggers and limits
- Set up a reordering system that is bullet proof and works with your suppliers time tables
- Understand the credit terms extended to you and exploit them. i.e. 30 days from invoice is very different from 30 days from EOM ordered. This can give you an extra 30 days credit when worked correctly.
- Ask business owners at your local networking meeting how they maximise their cash-flow
- Consult a business coach or consultant
If this is the opportunity you need to review your Creditors Benchmarking and work with us, please contact us via the form below and see how we can help you achieve your goals.