Managing debt collection is one element, but managing outgoings is equally important. It is only good business to take advantage of the credit terms offered to you. It is reasonable to use the maximum time offered before paying suppliers – without, obviously, jeopardising relationships and the continuance of supply.

If you are giving your customers 60 days credit and are only getting 30 days credit from your suppliers, there is an obvious finance gap. That’s fine if you have enough working capital in place to see you through.

Many business start-ups, when considering the initial capital outlay, tend to think of the headline purchase value of the company and the cost of the fixed assets required. But the working capital requirement – the money you need to buy in goods and service operations – must be accurately forecasted to see you safely through the early years and into the future.

Banking facilities to provide working capital can be tailored through loans, a mixture of loan and overdraft or simply an overdraft on its own. It is extremely important to forecast your funding requirement as accurately as possible at the outset of your business. If not all of your overdraft facility is used then no harm done. However, if you have to return to your bank manager cap in hand for more funds a year down the line then it raises questions on the credibility of your judgement and ultimately the viability of your business. The crux of the matter is ensuring that sufficient funds are available to finance, not only the upfront costs of your business, which may include any planned losses in the early months of trade but also the day to day running of your business going forward.

About Author

Kevin Booth is a Partner with French Duncan, Chartered Accountants. To contact Kevin email k.booth@frenchduncan.co.uk or tel: 0141 221 2984