What small business owners fear most

[wynn]

Pete Bowen had a software program that you loaded the amounts owed by clients and it would send reminder emails at certain times preceding month end to gently remind clients payment was due then it became more urgent as it fell overdue.
The theory was that if you kept reminding the client you would be at the top of the list.

Unfortunately I don't have a link, perhaps one of the ex BW's does know the link?

[Blurock]

I also use to fear asking my customers for payment, but as time passes, the fear goes. Everyone knows you need money to operate. Overcome this fear, and be polite and upfront with a question such as "Hi xxxxx, I am a little tight for cash right now, can I come and collect my payment?"

Never fear to collect YOUR money. Remember that the debtor owes you, not the other way round.

Tips for collections: Never be rude, always be professional and business like. If it is a difficult customer, speak directly to the owner. Get a commitment, even if it is not for the full amount.

Find out who the creditor's clerk is. About a week before the due date, phone and confirm that they have received the statement and that there are no queries. Some people tend to wait until month end before raising queries. You then end up waiting another month to get paid.

Make sure that your paper work is in order; delivery notes, invoices, statements etc. Quantities and amounts must be as agreed as queries only delays the process and gives the debtor an opportunity to divert the conversation from him not paying, to you not performing. That is why good admin staff are precious!

Business is about relationships. Maintain good relations with your customers so that any problems may be discussed openly. You do not want unpleasant surprises. By visiting customers on a regular basis, you can also gauge whether stock is moving (sales) or not (problems). By networking in your business community you can also get a good feel for where businesses are and how they are performing.

I am sure our members may be able to quote many best practices that we can learn from.

[ThreePeaks]

Blurock, you offer very solid advise the entire way through this thread.

If you find that you are still battling with cash flow problems perhaps its time to outsource to a professional.
Three Peaks offers personalised cash flow management solutions for small business owners.

[wynn]

Pete Bowen had a software program that you loaded the amounts owed by clients and it would send reminder emails at certain times preceding month end to gently remind clients payment was due then it became more urgent as it fell overdue.
The theory was that if you kept reminding the client you would be at the top of the list.

Unfortunately I don't have a link, perhaps one of the ex BW's does know the link?

"I found it" Here is the link

http://www.getting-paid-system.com/index.php

[Dave A]

The amazing thing about this thread was when I asked the question, the last thing on my mind was bad debt. In fact I didn't even rate it. For me bad debt was just a number in the budget, and as long as it didn't exceed that all was well with the world.

But after a little thought I have to agree - it has to be right up there as one of the biggest threats to (particularly SME) businesses here in SA. We just have way too many people who think it's OK not to pay for goods and services received.

Enough bad ones and you're a gonner.

[wynn]

If your markup is 20% and your average sale is say R500.00 if one in five buyers does not pay on time, you may as well of not done any business at all untill the delinquent has paid???

[Dave A]

In some businesses, even too many slow paying debtors can sink you.

[Justloadit]

Another concern as a small manufacturing business, is to get that huge order you always wished for, and now you must finance it.

It sounds great, but the risk factor goes up 100 fold, especially when the client concerned insists on paying 45 days of shipment

Just some basic numbers -
Order value approximately R1million a month.
Raw materials take 6 to 8 weeks to arrive at your premises
It takes you 6 weeks to work the raw material into a product
To get good prices from suppliers, you have to pay up front when placing the order
The order will run for a year or more - unknown
By the time you get your first payment, you in for approximately 4 months of manufacturing, and have paid 4 months of raw materials up front paid

[Blurock]

Another concern as a small manufacturing business, is to get that huge order you always wished for, and now you must finance it.

It sounds great, but the risk factor goes up 100 fold, especially when the client concerned insists on paying 45 days of shipment

Unless you have deep pockets to fund such a long cash flow cycle, you will need some form of supply chain finance. Will the supplier give terms?

You may consider an L/C or even stand by letter of credit to your supplier as you need to import at least 2 - 3 shipments of raw material before you can convert any invoice into cash. This may be a slightly more expensive option, but will allow you more flexibility. What happens if the debtor does not pay on 45 days?

You may also consider discounting the invoice, which will give you up- to 80% of the invoice value on POD. This option will cost you marginally more than an overdraft, without the security strings attached, but it will accelerate you cash flow by 45 days.

[SSS100]

CASH FLOWS is the worst, esp dealing with parastals

[Miro Bagrov]

The main difference between the USA and South Africa is the cost of capital.

Here business owners who borrow must pay 10% interest when in the USA one must pay 1%. (Something to that effect)
Even with similar Profit Margins, the South African business pays more.

[robinsonwang]

This recent Gallup poll of small business in the USA is pretty revealing.

How different is the situation here in South Africa?

What poses the greatest threat to your business?
What gives you the most problems in your business?
What is your greatest fear?

How to get a more competitive supplying price

[flaker]

what about labour?

Im surprised that no one mentioned labour. if you're a cash business cash flow can be no problem but labour's continuous demands for a larger share than even the bosses is scary. there is far too much protection for labour. there are times when a boss wants to be Trump & say "you're fired".
In this country that can't happen. you're hauled to the labour court or threatened or......

[gac]

Oh boy, this discussion sounds very close to home. I have been running my own business for 10 years after being salaried for 20 prior to that and often think about how nice it would be to again wake up on the 1st of the month knowing the next salary is only 25 days away rather than the thought of whether there will be enough money at the end of the month to meet all the payments.

Cash Flow is not a new phenomenon but appears to have become aggravated due to declining economic conditions, rapidly rising costs (including need for higher disposable income at home) and greater competition driving down profit margins. Reducing Margins impact negatively on cash reserves over time and simply means we can afford less to wait for our debtors to pay us.

Incurring Bad Debt is not necessarily a problem for if anyone was to boast that they have never had a debtor default, then that probably also means that they have been overly conservative and lost out on a lot of good business along the way. Very fw business opportunities are risk free and I have learned that one should rather strive to keep Bad Debts within a maximum tolerance level and that level varies from business to business depending on the average profit margin per trading year.

I agree that Admin and particularly keeping debtor records up-to-date is critical. This enables one to pick up a negative trend early and provides an opportunity to take corrective action sooner rather than later. It does of course help more in a business where one is supplying regular customers on on-going basis as opposed to project type work, where transactions tend to be once-off and therefore monitoring trends is almost impossible. In the latter scenario the need for good documentation (detailed quotations, trade or credit applications with reference/credit bureau checks, thorough agreements etc) up-front part payments etc is probably the best one can do. Easier said than done, I know but absolutely critical to take the time to go through the motions. Never be afraid to ask for a payment that is due to you but be careful to ask for it rather than demand it. I have learned that the minute I have ever given a customer a reason to be upset with me (e.g. getting shirty about a late payment) it is too easy for them to play hardball and drag it out even more. Instead I have learned to be sympathetic but politely persistent (ask when payment will be made & diligently follow up on that date) and firm about the need for them to make the payment. Doesn't work every time but does most of the time.

Factoring & Invoice Discounting is an option but has strict qualifying criteria, is fussy about the quality of the debtors, can be quite onerous to a business that is already struggling to maintain a sound administration, comes at a finance & administration cost and it may be far better to rather incur additional expense by implementing a better bookkeeping system in-house. It is however an excellent way to finance a growing business's additional working capital needs where good quality clients make up the majority of the book. But be cautious.

[Blurock]

Factoring & Invoice Discounting is an option but has strict qualifying criteria, is fussy about the quality of the debtors, can be quite onerous to a business that is already struggling to maintain a sound administration, comes at a finance & administration cost and it may be far better to rather incur additional expense by implementing a better bookkeeping system in-house. It is however an excellent way to finance a growing business's additional working capital needs where good quality clients make up the majority of the book. But be cautious.

Factoring is a growth tool and should never be applied to a failing business. Once turnovers decline, factoring will only add to your woes. However, it is an excellent tool for growing businesses without access to traditional bank funding.

I have seen an IT firm grow from R2.5 million to R40 million in one year. Another business managed to grow from R2mil to R22mil by using factoring to accelerate cash flow. These are exceptions, but shows what can be done if factoring is applied correctly.

New entities often do not have access to supplier credit and are expected to give terms to customers in order to make a sale. How often are opportunities missed because there is no cash flow to procure raw materials or stock necessary to do the next transaction? By having access to cash from discounted invoices, the small business would be able to undertake new work and settle creditors early for a possible discount.

This will enable Small Businesses to do what South Africa needs them to do: GROW!