Why Wonga? Fix your cashflow before you break the bank
Last week Wonga announced that it is entering the business market.
The high-cost payday lender has faced significant criticism over its personal loans, which are currently being made at a representative APR of 4214 per cent. In contrast, High Street consumer loans are available from around 6 per cent.
News that the lender intends to offer business loans has been met with consternation. Wonga has said that the rates it charges will depend on the credit profile of the business in question – but its reticence to give an indicative figure suggests that they will be high.
Wonga’s entry to the business market is indicative of the increasingly poor state of small business cashflow in the UK. Firms are being forced into taking loans from organisations like Wonga because of a combination of factors affecting their ability to meet their financial obligations at the end of each month.
In an ideal world, businesses would avoid expensive emergency loans altogether. But in order to do this, entrepreneurs need to get a handle on cashflow. We have compiled some top tips to help you keep on top of your finances.
1. Make a budget
A comprehensive budget is your most important weapon in the cashflow fight. Take some time to work out exactly who you need to pay, and when. By writing down all of your regular expenditures you will develop a clearer idea of your true financial position.
2. Think about the credit you offer
Be sensible in the credit terms you offer to clients. Don’t offer more than is expected in your industry, other than in exceptional circumstances. This will help to ensure that you are not left waiting for payment for any longer than is necessary.
3. …and the credit you get
Try to negotiate suitable credit terms with your suppliers. Again, consider what is normal in your industry, and negotiate from that point. Remember that suppliers are likely to be more reticent to extend credit to new businesses, and that you may be required to undergo a business or personal credit check. Similarly, remember that credit periods are designed to give you room to breathe. Try not to leave payment until the very end of the credit period.
4. Chase invoices
At the other end of the payment spectrum, it is vital that you institute proper invoice control measures. Ensure that your clients and customers understand when payment is expected, and that you chase invoices as soon as they become due. Often a letter or email is all that is required to secure payment.
5. Credit check clients
Finally, in some circumstances you might consider running a credit check on your customers or clients before you offer them credit. This is particularly highly recommended if you are dealing with large transactions. Agencies like Experian and Equifax can help you do this.