Business mistakes example
We had very high trust in people with regards to credit terms and payment. We used to offer everyone 30 days no matter who they were. We were owed so much money that it crippled our cash flow and nearly put us out of business. Things became really serious when some of the companies that owed us money went bust and didn’t pay at all.
Impact it had
We didn’t have enough money to pay our suppliers so they stopped supplying us which meant we couldn’t do any more work. We had to cut our own wages and put more money into the business to get things moving.
Yes we should have seen it coming, it was just a completely unsustainable way to run a business. We should have recognised this a lot earlier and put procedures in place to avoid it. We had many people we could have called upon for advice but were too busy concentrating on sales and production to care about our cashflow and finances.
I would have our payment procedures and processes in place from the start, made sure we asked for advice from accountants and other businesses to see how they manage that side of things.
We signed up to a credit scoring software and created account applications that anyone who wanted credit terms must fill out. We now take the advice of the software in terms of the credit terms we can offer specific clients and stick to them as close as possible. We also put in procedures for chasing payment and what happens when people don’t pay.
I think you must be honest with your customers and suppliers when it comes to money. If customers know from the start what your payment terms and credit position is they are generally happy. If you don’t have this understanding and try to change the goal posts down the line it can have a negative effect on customer relationships.
We learnt from this mistake as it was such a big one that nearly cost us the business. We are now much more proactive in every other area of the business in making sure we apply the same procedures and processes whether it’s in sales, production or finance.