The Language of Small Business Texts and Vocabulary Training (for students of Economics) Part 1. Учебное пособие

Staying Afloat

How to chase Money you are owed:

aStep-by-Step Guide

1.Make sure your credit terms are known to your customer. The best way is to print them clearly on the invoice.

2.As soon as your customer has overstepped the mark and the bill is overdue, ask for the money you are owed. This should be done politely in writing.

3.If there is no reply within seven days, check that the details of the invoice are correct and that you have quoted all the information the customer needs to identify it, for example, the customer's own reference.

4.Send another letter by recorded delivery.

5.No reply within seven days? Make a phone call to find out what the problem is. Do not assume that the customer has no money; there may be queries on the account or other problems. Find out the apparent reason for the non-payment.

6.Use the phone call to find out if the customer has a weekly or monthly cheque run and find out the day this is done.

7.Still no payment? Keep ringing and especially two or three days before the cheque run. Try to extract a promise of payment.

8.Keep the pressure up. Do not pester and then drop for a few weeks; all your previous chasing is undone. Keep up a steady and persistent guerrilla warfare.

9.If the customer is always out or in a meeting when you telephone, and you suspect this is due to a desire not to speak to you, try pretending to be someone else who you are sure your customer will want to speak to. If you deal with an accountant or book-keeper, try speaking to the managing director of the customer's business.

10.Try different times of the day and the week: lunchtime is not usually a good time, try first thing Monday morning can be effective.

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11.When you eventually manage to speak to the person you want, if he or she says ‘I’ll chase it up and see what has happened', say you will keep holding until they do.

12.If the customer says “The cheque has been posted”, ask for the date this was done, whether it went firstor second class, how much the cheque was for and what the cheque number is.

13.If the cheque does not arrive, go to collect the money in person; this is what the Inland Revenue and the Customs and Excise people do. Get the cheque cashed as soon as possible, so that it cannot be stopped.

14.Check all the details of the cheque: your name, the amount, the date, the signature.

15.If all the previous steps have failed, send a formal letter preferably from your solicitor, either threatening to take legal action to recover the debt or to start bankruptcy or winding-up proceedings or threatening to use a debtcollection agency. Keep the threat.

16.Consider using an agency.

17.Consider issuing a writ for the debt or consider starting bankruptcy proceedings against an individual or wind- ing-up proceedings against a company. Consider using the small claims court. Ask your solicitor's advice.

Using an Agency

Once the money has been overdue for two to three months, you could hand it over to an agency. They will write and phone and eventually either collect the money or report that it will only be collected by legal action. The usual charge for an agency is some percentage of the money recovered.

A half-way house to using the full-blown debt collection service is to use an agency to write to overdue customers pointing out that non-payment will be reported to credit-reporting agencies, which may

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harm the customer's credit rating. As this is very important to a business, this often has the desired effect. However, payment is actually made to you, not the agency, and so long as this is done, the information is not entered on the customer's file at the reporting agency.

Selling your Debts to Raise Cash (Factoring)

Essentially, a factor buys your debts in return for an immediate cash payment. Generally speaking, factoring is available for debts from other businesses, rather than individuals. In a full service, the factor takes over your records for debtors and collects the debts. In return, you could receive a payment of up to 80 per cent of the face value of the invoices. The balance of the money will be paid when the debts are collected. Factoring occurs on a continuing basis, not for one individual set of debtors. The factor will often offer insurance against bad debts.

There are less complete service, for example:

•the factor does not take over your records;

•the customer does not pay the factor, but pays you;

•invoice discounting, that is, you maintain the records and collect the debts. This means that your use of the service remains confidential and your customers are not aware of it.

While a factoring service seems the answer to your cash flow dreams, there are some conditions:

•if your sales are less than £100,000 a year, you may find it difficult to factor your debtors;

•the factor will investigate your trading record, bad debt history, credit rating procedure, customers and so on before deciding whether to offer you a factoring service;

•some factors give automatic protection against bad debts; others do not ;

•you are likely to have to agree to a one year's contract with a lengthy period of notice. Note that all the separate components of factoring, that is, keeping your debtor records, cash

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collection, invoice discounting and credit insurance are available separately from a number of organizations. Compare costs of several factoring services and look at the cost of the individual components.

Your Suppliers

Quite a lot of the way you can deal with your suppliers (or creditors when you owe them money) is simply the reverse of what you do with debtors. Taking credit from suppliers is a significant source of finance for most small businesses. However, the other side of the coin is that those suppliers may be short of funds themselves and heavily dependent on getting in the money they are owed as quickly as possible.

When you are short of cash, you may find yourself chasing your customers and cursing them for not paying up, while doing exactly the same yourself to other businesses. As a starting point, your first step should be to try to negotiate improved credit terms from your suppliers, rather than simply taking unapproved extended credit.

Unfortunately, being open with your suppliers does not always pay off. Saying that you are short of cash this week but you will pay next week can cause panic. Your creditor may issue a writ without delay and your future credit terms may be affected.

Nevertheless, when the chips are down, one way of seeing yourself through a temporary shortage of cash is to push up the length of time you take to pay your creditors. It is, of course, a slippery road; what you fervently believe to be a temporary shortage of cash may turn into a permanent shortfall. If you cannot make good the shortfall by raising more permanent funds, you will go to the wall with a lot of unpaid bills. A lot of small businesses like yourself will also lose money as a result of your action. Somehow, you have to know where to draw the line.

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What happens when a Supplier investigates you?

Any well-organized supplier will carry out the same screening of you as you do of customers who are going to place largish orders with you. Expect to be asked for:

•permission to approach your bank for a reference;

•two trade references;

•a balance sheet or a set of the latest accounts;

•further information as a result of the supplier's investigation.

The supplier will also probably approach a credit reporting agency to see what it has on you and what your credit rating is. Of course, when you are starting in business, you can provide none of the information mentioned above. You may be forced to pay in cash initially, until you have built up some sort of record. A large supplier may even ask for a personal guarantee. You may be able to avoid this if you can demonstrate that you have sufficient funds raised to get the business through the building-up stage.

The Records you Need for Control

Details of the records you should set up are given below. But you should be able to derive the following information from them:

•say how much you owe in total at аnу time;

•say how long you have owed the money and to whom;

•a record of what you have paid each supplier and when.

How to delay paying what you owe

Essentially, you can use only a series of excuses, not to say downright lies; theгe are few honest ways of delaying payment. However, it may be some comfort to know that most successful small businesses at some stage have to delay payment.

The first step to take is not to consider paying any bills until you are asked to.

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The second step is to introduce a paying schedule which involves making cheques out only once a month. Further steps involve simply delaying paying.

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Definitions of terms

Afloat, com. – (of a business) free of debt; able to finance its trading activities.

Overheads, fin. & accts. – the expenses of running a business., especially those fixed costs that cannot be related to particular units of goods produced or goods sold, such as rent, rates and management salaries.

Launch:

1.stk. exch. – to start a new company

2.com <£ advtg. – to put new product on the market.

Work(s)-in-progress, accls. – the value of goods in the course of manufacture, i.e. of goods only partly completed, at the end of the accounting year.

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Syn.: goods in progress. Abbr.: W.I.P.

Gross margin, com. – the difference between the retail and the wholesale price, i.e. the retailer's gross profit, usually expressed as a percentage of sales.

Cf.: net margin: com. ~- the net profit made by the retailer on the sale of a commodity or article. It is the difference between the gross profit and the retailer's selling expenses, and usually expressed as a percentage of sales.

Margin, com. – the difference, between the cost and the selling price, i.e. gross profit.

Pl: margins, or profit margins, – the rate of profit generally made in selling an article or commodity.

Statement, accts. – an amount of money owed or owing, received or paid.

Bank statement, bkg:

1.a loose-leaf sheet or sheets supplied by a bank to each customer, giving details of ail debits and credits made, especially to his current account, during a given period and showing the opening and closing balances.

2.in USA, a report on the financial position of a bank made to a controlling authority.

Direct debit, bkg. & com. – in Britain, a way of making payments. A customer arranges for his band to pay money to certain organizations, usually suppliers of good reputation, when they present (produce) their bills direct to the bank, and to debit the amounts to his account. This saves the customer the work of paying cash or of writing cheques, the expense of postage, etc.

Fringe benefit, any reward given to an employee in addition to normal wage or salary, such as a pension, the use of a company car or house, free or cheap meals, loans at low rates of interest, and private medical treatment.

Syn.: benefit in kind.

Building society, fin. – a financial organization formed for the purpose of helping people to build or to buy houses. By issuing shares and accepting deposits from small investors, it collects money, which it

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lends to borrowers on mortgage, i.e. against the security of borrowers’ property. These loans are usually repayable over many years by the annuity system, i.e. equal periodical payments consisting partly of capital and partly of interest on the amount outstanding.

Bank charges, bkg. – charges made by a bank on a customer for the work of keeping a current account and for certain other services. Some banks charge a commission on current accounts of an eighth to a quarter per cent on the total value of all cheques debited, while others base their charge on the number, not the value, of all cheques drawn and credits made to the account, during a given period, usually of six months. Most banks, however, make no charge if the average credit balance in the account is kept above an agreed minimum figure.

Syn.: bank commission; commission on current accounts; ledger fees.

Discounting:

1.bkg. – in return for a discount, buying, or advancing money on, a negotiable instrument» such as a bill of exchange, which is due for payment some time n the future. The discount is in fact interest calculated at the market rate for the number of days that the bill has yet to run until due for payment plus a varying element for the risk involved.

2.fin. – calculating the present value of a future sum of money, allowing for interest. The present value must be less than the future amount because of the delay in getting and using the future amount. The present value or discounted value is the capital sum which, if invested at a certain rate of interest compound, will increase to equal the future amount after a given number of years.

Syn.: discounting back.

Discount:

1.bkg. – a sum of money allowed for immediate payment of a sum due at a later date. If the sum is secured by a bill of exchange, the party who buys the bill and receives the discount is said to discount the bill.

2.com. – a reduction from list price or catalogue price or market price, such as a trade discount, quantity discount, etc.

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