SME Cash Flow Hampered By Poor Paperwork
Businesses struggling with cash flow problems are
making life more difficult for themselves by poor paperwork practices according
to Lock Finance, which has specialised in business financing since 1889.
Lock Finance CEO
Simon Thompson, who is also a part time consultant to the World Bank, will tell
a meeting organised with Business Mentors New Zealand in Christchurch next week
(2nd October) that: `Disorganised invoicing, poor accounting systems and ongoing avoidance
of debtor collections are
hampering the SME sector’s attempts to tackle its cash flow problems.’
About a third of Lock
Finance’s clients are based in the Canterbury region. The meeting aims to help
business mentors assist client companies get to grips with their cash flow
difficulties. Business mentors report that managing cash flow is the number one
problem facing SMEs and it is a major issue for companies seeking assistance
from Lock Finance.
Simon Thompson warns:
`Although the level of confidence is improving SMEs must be careful to keep
their paperwork in order to keep their cash flow coming through. We are still
finding clients who are not promptly invoicing or following up payments which widens
the gap between money going out on wages, materials and running costs, and the
money coming in for work completed.’
He points out that: `If your business accounts
are disorganised it’s hard to get a clear picture of where you are with your
cash flow. It’s no good doing lots of work if you’re not keeping on top of the
invoicing. A good approach is to bill as soon as the work is done and get the
invoices out. It’s easy to get too busy or be too polite to chase up outstanding
invoices. Late payments can be fatal for your cash flow. And by keeping track of
sales and income monthly and monitoring patterns you can try and head off a
drop in cash flow caused by slow sales by rethinking your marketing to boost
income.’
He adds: `Unlike some
of the bankers and other financiers we do understand the order flow and the
business cycle. Traditional banks find it hard to deal with a business without
having property as security or cash in the bank. They haven’t got the people or
the expertise to properly assess a business and so a lot of hidden value is not
being recognised.
`Business owners
should realise there is a more diverse range of SME assets (such as plant,
inventory and account receivables) beyond traditional security such as
property-based assets on which to base their borrowing. New Zealand leads the way in this area and
the World Bank sees us as a ‘best practice’ country. We have a very good legal
framework (based on our Personal Property Securities Act), a well-used online
security registry system and active market lenders, such as Lock Finance, who do
not need property security when lending to the SME sector.’
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