Re: FN-FORUM: The first six months..

date posted 16th August 2004 13:35

Hi Aaron,

It sounds to me like you need both a long-term and short-term
cashflow strategy.

At 5:32 pm +0000 15/8/04, Aaron Brailsford wrote:
>I have one *big* job on at the
>moment that will keep me busy up till the end of August and is worth a
>reasonable whack of money (=A34k, to be exact) - but knowing the company
>it's for, it'll be October/November before I manage to squeeze the money
>out of them.


LONG TERM:

By operating in this way you are providing your customer(s) with a
=A34k, interest free credit account. Can you really afford to do this?

If you need to borrow this money from a bank/credit card then you
will be charged interest and will effectively be paying for the
pleasure of working for the customer.

My advice (if only for the future) would be to bill progressively at
key points during the project cycle. The first of these should
ideally be an advance payment - say 20-30% of the estimated project
value - before starting work. But if that's not agreeable try to tie
a figure like this in with completion of a 'first phase' of work. eg:
delivery of a written specification

As obtaining advance payments may not always be possible consider how
much credit you can afford to extend to your customers and over what
period.

If a job is worth less than the credit limit you can afford, then you
are limiting your risk to late payment by that customer for which you
can (theoretically) charge interest and a fee
(http://www.payontime.co.uk).

When setting your credit limit bear in mind that if you could easily
end up working for two or three customers at the same time and will
therefore be extending credit to all of them simultaneously.


SHORT TERM:

If you have already started work on this project, then you may just
have to wait until the project is finished before you invoice them.
It may however be well worth simply asking them if you can invoice
now for work done to-date to keep your cashflow moving (re: Luke
Perman's post). They may well be happy with this.

If not, then one option is a business overdraft which tends to accrue
interest at a lower rate than a current account and can also provide
a higher credit limit. Building a good 'internal credit score' with a
bank on a business account could be useful in the future if you want
to expand the business.

Alternatively there are a lot of 0% interest deals on balance
transfers to be had at the moment if you can get a new credit card
(eg: http://www.egg.com). This could provide you with the operating
capital you need over the coming months without costing you a penny*.

In my experience a balance transfer can be made to your current
account - not just other credit and store cards. So, assuming your
credit rating is good, you should be able to obtain a card with a =A34k
limit at 0% interest for the next 6 months. Once you get paid by the
customer you can simply pay off the balance and cut up the card.

HTH

ColinR

PS: *If you take out Payment Protection Insurance on a credit card
payments for this _will_ accrue interest over the 6 month period.

--
---------------------------------
Colin Rainsforth, BA (hons)
=46reelance Graphic Designer
Web | Print | CDROM

Tel/Fax: 01993 882814
http://www.paneris.org/colinr/
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