I’m sure cash flow will sit high at the top of your priorities as a small business, and if it doesn’t then it should as cash flow will impact on the sustainability of your business.
Just before Christmas I met Clive Lewis, Head of Enterprise for the Institute of Chartered Accountants in England and Wales. I asked him if cash flow was the most important factor for any business regardless of size. Clive’s response was that “for smaller businesses particularly start-up and early stage businesses, cash flow is absolutely the number one priority. They lack a track record, have few assets and are building a business which often requires working capital, therefore cash flow is critical.”
So we can agree that cash flow is important for a start up. Given this, I’d like to bring to your attention a basic tool that you’ll all be familiar with and more than likely already use in some capacity. I’ll tell you how it can benefit your business and how best to access, set up and mange this tool.
You all know what it is and I’m sure you will all have a number of direct debits set up to pay numerous commercial and personal bills e.g. utilities, telecommunications.
How can direct debit benefit my start up’s cash flow you ask?
Direct debit denotes the only payment collection method that pulls rather than pushes payments putting the control in your hands as a business whilst at the same time making settlement of payment convenient for your customer. It’s a trusted and recognised payment method and is proven to reduce debtor days, improve cash flow and streamline credit control.
Adapting to take advantage
You might think Direct Debit is only suited to a certain few sectors, but in reality many businesses and organisations can adapt their collection strategies to take advantage of Direct Debit.
Direct Debit can be used to collect any form of recurring payments (variable or fixed values) from service fees to license fees, installments to membership fees, insurance premiums to hosting fees and everything in between.
It’s worth remembering that Direct Debit doesn’t have to be offered to customers as a payment option exclusively – it can be offered in addition to other payment methods or to certain customers e.g. those with poor debtor history.
How to access Direct Debit as a collection method
Let me save you some time before you go and speak with your bank manager and assume setting up a direct debit facility via your business bank account is the norm and easily accessible. Banks are actually often reluctant to offer start-ups and even reasonably sized SMEs (turnover approx. £3m) the required sponsorship to access a Direct Debit facility.
The most cost effective and administratively efficient means of a start up business collecting by Direct Debit is to do so via a Bacs Approved Bureau. A good Bureau can act as a fully managed solution, offering the provision of payer sign up, processing, collection reporting and customer notifications.
Many Bureaus offer the facility for start ups to collect online, on paper or over the phone and most will be able to ensure all collections are made in your own businesses branding which adds to your business’ professional image.
Could your start-up ensure cash flow is well managed by offering your customer base the option to pay by Direct Debit?
This guest article was written by Simon Reynolds, marketing manager at First Capital Cashflow Ltd, the UK’s leading Bacs approved Bureau. Web: www.firstcapitalcashflow.com