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New ‘calculator’ tots up trouble in store for small business cashflow

27 January 2011

The results of a new online tool launched by the Institute of Credit Management (ICM) to give small businesses an early warning of potential problems with cashflow are already giving cause for alarm.

The online calculator provides a simple traffic light warning of impending cashflow difficulties based on outstanding „debtor days‟. Those businesses with customer invoices still outstanding more than 75 days after issue are „red‟, between 50 – 75 days are „amber‟, and less than 50 days are „green‟. In a pilot last month, more than 300 businesses answered two simple questions (the amount of credit extended to customers over the past six months and the amount owed by customers) to reveal an immediate indication as to the extent of their cashflow concerns.

Alarmingly, 61% were in the red, 28% amber, and only 11% green – a cause of major concern to Philip King, Chief Executive of the ICM: “Businesses are still clearly struggling to get paid and in very real danger of running out of cash,” he says. “Extending credit is of course an essential part of business, but so is getting paid on time.
“Certainty of payment is everything,” he adds, “and if businesses are waiting 50, 75 or even 100 days or more to get paid – and still don‟t know when the cash is coming in the door – then the alarm bells must be seriously ringing.”

King points to a variety of tools available to help small businesses, notably the Managing Cashflow Guides put together by the ICM for the Department of Business, Innovation and Skills and through which the calculator can be accessed. All of the Guides are free to download from the BIS or ICM‟s websites.

Forum of Private Business chief executive Phil Orford said: “Late payment is a constant threat to small businesses, and the detrimental effect it has on a small firm’s cashflow has led to the demise of countless successful, well-run SMEs.
“However, here at the Forum, we believe it is increasingly important for business owners to be proactive about such problems and combat them through better financial reporting and monitoring. As a result, we would welcome the ICM’s new calculator as an important and innovative means of empowering smaller businesses in the fight against late payment.”