Many business owners are buoyed by turnover; if it’s sold it’s as good as money in the bank, but is it?
What are your credit terms? How many days do you allow your customers to keep your money before insisting they pay you?
30 days is probably the most widely used credit term, which in real terms probably means customers pay after 40, 60 days or more.
This topic has real relevance during the COVID era as many companies are having to use valuable cash reserves to fund losses. Cash in the bank is the lifeblood of businesses; run out of cash and you are dependent on personal capital, new capital from outside sources or the largesse of your bank manager.
Rishi Sunak and his team at the Treasury have done their best, thus far, to ease any COVID financial pain with various grants and soft loans. It will be interesting to see if this support continues beyond the end of April.
Meantime keep an eye on your outstanding debtors lists. Be cautious about offering extravagant payment terms to win a contract and chase payments due as soon as your credit terms are exceeded. Otherwise, you may end up out of pocket.
