Every day in the UK growing, profitable businesses run out of cash and go bust. In this age of ‘computer says no’ banking, some banks can and do put their own balance sheet first and pull the plug on business customers.
So it’s refreshing to see signs of real local, relationship banking coming back. A bank that understands your business and is part of the team is essential for ambitious businesses. Santander‘s latest campaign show-cases the work they are doing to establish themselves in that space.
It is never too soon to start thinking about the kind of long-term banking partner your business will need. For new start-ups the idea of turning down a large order from a prestigious client is unfathomable. But the reality is that it could be months, if not years, before you are paid for the commission. In the meantime, you will have to pay for materials, transport and labour up-front. Without a bank that really ‘gets’ your business, chances are that that big order could pull the whole business under.
Of course you can’t rely entirely on your bank for cash-flow management. Make sure that you have systems in place to get paid as soon as you possibly can. Always send invoices immediately and make them look professional. And try to negotiate:
• Cash on delivery for small amounts.
• Payment up-front for materials for large orders.
• Phased payments for large jobs.
Standard terms will vary in different industries, but you have nothing to lose by trying to negotiate a better deal. Remember that it is in your customer’s interest for your business to be able to operate on top form. Squeezing you too tightly will harm them too. Good negotiation is win-win for both parties.
Make sure that you protect yourself too. If a customer wants to pay for a large order in arrears, get credit checks and take-up references.
Trade finance facilities, which allow you to draw-down funds against invoices, are another useful tool for balancing the cash-flow of businesses with large upfront costs or a seasonal sales pattern. Outdoor pursuits clothing company Equip, falls into both those categories. Matt Gower set-up Equip during his ‘gap year’ 20 years ago. Matt has grown the business to a multi-million turnover with 130 employees. In the video below, he shares the story of how getting that banking partnership right has transformed the business and enabled him to step-up expansion. It’s an inspirational story and well worth a look.