Cash Flow - Timing is Crucial

As the old adage goes, ‘If you look after the pennies, the pounds will look after themselves.' While today this remains an astute little phrase, the volume of SMEs (small and medium size enterprises) struggling with poor cash flow and therefore unable to look after pennies, let alone pounds, is on the rise and shows no signs of relenting.

In a modern, recession-hit society, cash flow becomes the linchpin that holds together all businesses and keeps the wheels of commerce turning smoothly. Without a clear view of what is available to a business at all times in terms of working capital, it becomes extremely difficult to forecast and remain competitive in markets that are already proving a stern test for even the most well-established companies.

Payments and collection are two of the most critical elements of the cash flow cycle. By tightening controls around these areas, a business is far better placed to deal with poor cash management.

B2B (business to business) Direct Debit Collections

The role of the collections in the cash flow cycle cannot be understated. It is by placing emphasis on prompt and efficient payment from its peers that a business is able to make critical decisions regarding its running and, essentially, remain competitive.

Bob Larkham, Head of Payment Industry Relations at Albany Software, commented: "When it comes to Credit Management, more and more businesses in the rest of Europe are using B2B Direct Debits to collect monies owed. Rather than chasing up for cheques or asking to be paid on time via Direct Credit, they agree to supply goods on the basis that they will collect payments via B2B Direct Debits."

He continued, "Rather than harnessing the present UK Direct Debit service, we should encourage the UK Payments Council and Bacs to introduce a same day or next day, non-refundable B2B Direct Debit as a separate service with its own scheme rules. This would be ideal for the many SMEs who currently cannot get their bank's permission to be Direct Debit Originators."

A B2B Direct Debit system, mirroring the current one in operation, would facilitate the eradication of older, inefficient payment methods such as cheques and cash, virtually guaranteeing the regular arrival of funds directly into the business's bank account in accordance with the timescales agreed, eliminating the dreaded question: ‘When will I get paid?'

The Faster Payments Service - Direct Corporate Access (DCA)

Launched commercially in May 2008, The Faster Payments Service introduced a same day payments system at a fraction of the cost of CHAPS payments and, as a result, consumers are able to transfer money between bank accounts instantaneously.

Direct Corporate Access for Faster Payments, which was piloted in July 2009 by Barclays and Albany Software, and due for general release thereafter, will enable businesses nationwide to embrace the system and begin making same day transfers. The scheme will not only serve as an inexpensive contingency for late payments to staff and suppliers, but will also facilitate regular usage for businesses wishing to spend more time on their financial processes, while still meeting deadlines.

By making and receiving Faster Payments, businesses will be viewed in a much more favourable light by their peers and enjoy the reciprocal benefits that come with paying and being paid promptly. By knowing exactly what is available in terms of cash at any given time, a business is far better placed to make crucial decisions regarding investors and customers that the company is financially competent and stable.

Solutions - The Future and Technological Improvements

Such plans to halt the late payment epidemic are ambitious, but if they are to be successful a dramatic corporate restructure is needed. The fact is the technology is readily available to aid SMEs in such adverse conditions.

By sending financial documentation electronically and on time, the uncertainty over their receipt is eliminated and if at the other end the invoice is processed via Bacs Direct Credit, the payment will be received swiftly. A company can typically implement e-document distribution software in a matter of days and will, if sending 350 documents per month, experience significant ROI inside 1 year.

SMEs have at their fingertips the technology and the means to reverse their fortunes in the face of the adversity the business world is currently experiencing. Industry developments now mean that invoices and payments can be sent and received at the touch of a button, enabling a far slicker business model to take shape. This, coupled with the campaigns and initiatives already in operation to improve the cash flow cycle, should ensure that the future for SMEs is far brighter than many believe.

Albany Software Ltd provides a range of market leading payment solutions, including the ‘ALBACS' portfolio. They provide a broad range of powerful, integrated e-commerce solutions for businesses of any type and size. Telephone: 01420 547600 or visit www.albany.co.uk for more information.

Entrepreneurial Vision - November 2009 - Contents Page