It’s no secret that the UK’s economy took a blow during the pandemic — and things have only gotten worse since the Russia-Ukraine conflict emerged. But it might come as a surprise that the bank of England no longer expects the UK to enter a recession in 2023, after announcing on Thursday 23rd of March 2023 that the economy was expected to grow “slightly” in the second quarter of this year.

This means the technical definition of a recession — which is two consecutive quarters of decline — will not be met. However, many experts do not share the cautious optimism of the Bank. Deloitte in particular challenging the outlook and suggesting the UK is closer than ever to recession.

Whoever proves to be correct is really neither here or there as it is agreed by all the UK is in a dire financial situation.

In its projections last month, the Banks’ Monetary Policy Committee said the UK gross domestic product (GDP) would decline by 0.1 per cent in Q1 and another 0.4 per cent in Q2. If this proves to be the case, this would lead to a recession in the UK.

However, it has now said the Bank expects the economy to grow marginally in the second quarter. UK inflation unexpectedly rose in February to 10.4 per cent, close to its highest level in 40 years.

The confusion highlighted above does not help the UK business owners and fails to provide information upon which owners can rely.

Should a recession occur, a lack of economic activity will cause company profits to drop and cash flow to run stagnant, spelling disaster for small to medium-sized enterprises (SMEs) without a rainy-day fund to fall back on.

Therefore, as we anticipate this next phase of economic uncertainty, British businesses might be unable to simply ‘keep calm and carry on’. In fact, many organisations are already stretching their payment terms to ensure customers pay them back (even over a period of time) — opening the floodgates for all kinds of supply chain complications.

So, what are the risks of extending your payment deadlines, and how else can you stay on top of your company’s finances as another recession looms?

Reasons to leave your payment terms alone

When times are tough and people are struggling to pull together cash on a tight deadline, it makes sense that you’d want to give them a little longer to pay you. After all, kindness goes a long way — and you want to keep your customers happy.

But hear us out.

If you extend your payment terms, , this could have a serious knock-on effect on your suppliers’ operations — and damage or destroy long-term relations.

Of course, you could always find a new supplier if your existing agreements collapse, but this will come at a cost. You can never be 100% sure they’re reliable when starting from scratch with a new organisation. Plus, you might lose the more favourable payment terms that often come with having familiar contacts — meaning you could take one step forwards and two steps back.

And then there’s the fact that without the cash you need to keep your business running, you’ll be unable to invest in staff, which could result in salary cuts and redundancies.

So, as you can see, offering more generous payment terms could result in a vicious cycle where no one gets any meaningful long-term relief from the effects of economic trouble. As such, we recommend a different approach to help you maintain a healthy cash flow when everyone’s feeling the pinch…

Ways to keep it all under (credit) control

The best way to ensure you get the money you’re owed in today’s troubling economic landscape is with a robust credit control policy that covers all bases — something you can build with these simple steps…

Do some background checks

It’s always a good idea to check a customer will be reliable before establishing a professional relationship. We’re not suggesting you hire an investigator, but screening for any red flags in their payment history (like a breach of payment terms) can ensure you keep an eye on anyone likely to interrupt your cash flow.

Keep an eye out for changes

Unfortunately, it’s rarely enough to check your customers’ payment history just once. It’s essential to have constant visibility over whether your customers are meeting payment deadlines to ensure late payments don’t creep up on you. We recommend checking customer credit at least once a month to be safe. If you do not have the facility to do this companies like us are available to help.

Know where you stand

Another thing you’ll want to have is an ongoing awareness of is your business’ cash flow position. Because, at the end of the day, how can you survive a recession if you don’t know if your customers are regularly paying you back on time? You’ll get the best insights from calculating your day sales outstanding (DSO), which tells you the average time it takes for your customers to pay their invoices.

Set your boundaries

Once you know how healthy your cash flow is, you can work on improving or maintaining it with the most appropriate payment terms for your business. If you’re doing okay financially, you might be able to be a bit more flexible to keep customers happy. If not, you’ll want to set firm deadlines — and stick to them.

Be prepared for late payment excuses

Deciding on your business’ payment terms is often only half the battle. Most of the time (but especially when economic problems arise), customers will have a long list of reasons why they can’t meet deadlines, claiming ‘the cheque’s in the post’ or ‘our accounts are down’. To counter these excuses, be prepared to suggest using alternative methods of payment to ensure your paid in a timely manner, where there’s a will there’s a way!

Seek help from the experts

Sometimes, no matter how hard you try, customers are reluctant to change — leaving you with debts and stressful legal complications. In these cases, it’s best to get in touch with credit control experts who can help you collect overdue invoices, protect customer relations and rectify your cash flow for good.

Franklin James Credit Management is a credit management company offering credit control services that help you get paid on time, every time.

Contact us at [email protected] or call 01494 422742 to find out more…