Finding Alternative Funding

It’s still horrendously difficult for SMEs to prise funding out of the banks. Despite the government’s best efforts, they just don’t seem to be cooperating. Even Vince Cable, the Business Secretary, appears to have given up. Last month, at the Investec Entrepreneurs’ Summit, he said that the banks have their own problems and entrepreneurs should stop blaming them and find alternative funding for survival and growth.

When they are battling to survive or move forward because of late payments, small businesses may only need short term loan arrangements. There are several options for these.

Wonga.com

Originally a pay day loan company for individuals, Wonga recently began offering short term business loans. These have a very high APR but as short term at Wonga means a month at most, it doesn’t add up to much unless you default on the repayment, which could be very costly indeed. Don’t use Wonga unless you are completely confident that you will have the repayment funds in your bank account by 5am on the date you have chosen for the end of the loan. The amount will be collected from your debit card on that day. Your loan can be up to £400 initially. After that the ceiling may be lifted by negotiation.

Invoice Finance

If you use a factoring company, you send them copies of your invoices and they will release up to 85% of the amount payable to you straight away. This is particularly useful if you have your own suppliers to pay and can avoid interest being added, or take advantage of discounts for early payment. In some cases it’s been known to make a difference to whether or not an employer could pay wages and salaries on time. And because they will do the credit management work for you, you have the time and money to concentrate on other aspects of business success. The downside is that they will take a cut of the balance when the invoice is paid, or there may be a monthly fee to pay whether or not you use the service.

Market Invoice

If you are in the business to business sector, you might be able to avoid the monthly fee by using marketinvoice.com, which acts as an invoice auctioneer. The buyer of your invoice pays you the agreed percentage at the close of the auction and once your client has paid the invoice amount to Market Invoice, you and the buyer will be paid the appropriate amounts less a small fee. Market Invoice typically deals with large invoice amounts and will scrutinise your company before accepting your invoices for auction.

These are just a few of the alternative funding options available. If you are having cash flow problems, your outsourced bookkeepers should be pleased to discuss these or tell you about others they know about.

Consultation on Business Insurance Law Reform Proposals

Have you ever had a claim rejected by an insurance company because you failed to disclose an element of risk before signing the contract? This is a fairly common occurrence that has been the cause of many disputes which have been resolved in and out of court. It can have a devastating effect on organisations of any size, but small businesses are naturally less able to cope with the losses.

It has happened so often that the English and Scottish Law Commissions have been jointly reviewing insurance contract law. They recently issued their third consultation document focusing on this aspect, which they say will be the last one before they pass proposals to Parliament.

The Law as it Stands

Insurance law is governed by the Marine Insurance Act of 1906. Originally designed to insure ships and their cargoes, in the absence of a more general law, the Act has been applied by the courts to all forms of insurance.

It places a duty on the business to disclose all possible risks to the insurer before the premiums are decided and a contract raised. Business policy holders rarely understand the importance of this disclosure, but insurers are not required to intervene even though they are much better placed to know what questions should be asked and answered. Even some insurance brokers have little understanding of what is needed for a good presentation of risk.

An Unfair Balance

It means that the letter of the law supports insurance companies to collect premiums and then refuse to pay out following a claim on the grounds that they were not made aware of a particular risk. Policy holders may believe they have disclosed everything relevant when they have actually missed something that would have made a difference to the premiums charged. In these circumstances, even if the non-disclosure is not relevant to the specifics of the claim, they will not be entitled to benefit from the policy.

Small businesses may actually have a slight advantage here, because insurers are often more wary of doing business with them than they are of the business giants or even medium sized organisations. They may therefore ask questions and be more probing than the law currently requires them to be before setting premiums and issuing policies. If a claim is disputed, though, they are likely to be less able to pursue it and reach a favourable solution.

Redressing the Balance

So an implied suggestion in the consultation is to place a duty on insurers to follow up disclosure with their own investigations where they are not completely comfortable with a risk area. Another is that the remedy should no longer be an automatic withholding of claim payments. All the circumstances should be considered so that some benefit can be received by a business that has acted in good faith.

If you would like to take part in the consultation, you can find it at http://lawcommission.justice.gov.uk/consultations/business_disclosure.htm.

Getting Value from your Management Information

As a business owner or manager, you have to make decisions every day. Can you say, hand on heart, that you always know how to make good ones? Are you confident about them? Or do you sometimes feel you are flying by the seat of your pants?

The Information you Need

Most business decisions are based on management information, together with external data about the markets and the competition. While much of the external stuff will be collected randomly, you have much more control over the internal data. You just need to make your most basic decisions about what statistics and details you want, and how and when you should receive them, so that you will have the right information at your fingertips at the right time.

If sales of one product have suddenly taken off, while another is still languishing on the shelves, you need to know about it now, not in a month’s time. If a new customer is not paying your invoices, you have to get in touch with them sooner rather than later, and put a stop to the credit and the supply if appropriate. You have to know what is going on before you can do anything about it.

Structuring Data to be Useful

In theory, today’s technology should give you fantastic, instantaneous access to all the data you need. We’ve long passed the time of handing over scraps of paper to a bookkeeper every few months so we know how much VAT to pay. Knowing about your revenue flows, your profit and your available cash every day should never be a problem now.

But the information you hold will only be useful if it is properly managed and structured according to the needs of your business, and if it is readily accessible. While there are general rules you can follow about maintaining the quality of your data, every business is different, and different entrepreneurs do things in different ways. You may need to make a small investment in data quality software that will pick up inputting errors and maintain consistency, plus a good accounting system, efficient processes and the reports that work for you.

It’s a good idea to keep your experienced outsourced bookkeepers in the loop too, because they will have the objective viewpoint you may find difficult. They can help you interpret up-to-date information about your business performance, so you can make all your key decisions with confidence.