Credit availability is King

The King is dead. Long live the King! Everyone in business is familiar with the adage that cash is king. However, recent figures released by the Payments Council suggest we may need to rethink our understanding of the term. Last week they revealed that last year cashless payments overtook the use of cash for the first time ever, with 52 percent of transactions taking place via cards or other non-cash methods. With this in mind perhaps it would be more appropriate to say that money in the bank is king. While it doesn't have the same ring to it, it certainly seems to be more accurate.

Whatever expression you decide to stick with, the reality in the essence of the axiom holds true:  A lack of access to capital and an unhealthy cash flow are the primary reasons why so many of Britain's businesses fail. Conversely those that manage these elements will tend to invest more, employ more and thrive more. That having been said, we might want to coin a new phrase ‘Credit availability is King’.

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What this means is that you do not necessarily need to have actual cash in the bank - although there is certainly nothing wrong with that concept providing it is working for you. What you need is a facility that you can use on demand. It used to be the ‘stand-by’ line of credit. For most SME’s this is a thing of the past in terms of their bank relationship. So if that is a thing of the past, how do you create that illusive ‘tap’ that you can turn on as needed. Believe it or not there are many different approaches to this. They mostly revolve around being an astute manager of your company assets, and utilising them to the full.

Large companies have become very expert at working their accounts payable to take advantage of an extra day here and there. When you are dealing with millions of pounds of payables, a few days’ delay adds up to a healthy resource. It is far more difficult for SME’s to adopt this approach as they lack the ‘clout’ and buying power of the national and multi-national organizations that they supply.

Another great use of company assets is receivables rather than payables. In this area SME’s certainly do have access to programmes that can greatly assist them. Spot factoring or single invoice discounting are becoming extremely popular in the SME community due to their ease of acquisition - a programme can be established literally in a few days - and their ‘use-it-as-you-need-it’ approach. With these facilities the company owner can turn a single invoice into instant cash virtually overnight - from having credit available to cash is king in few very short steps.