26 December 1997

Invoice sent late gets paid late

By Mike Williams

FAILURE to get invoices out on time is one of the biggest faults with the way many farm contractors run their businesses, delegates at a recent National Associa-tion of Agricultural Contractors management conference in Coven-try heard.

Lyn Matthews, financial partner in the Wantage, Oxon-based Matthews contracting business, said the result was likely to be an additional interest payment on the bank overdraft.

"The reason contractors do not invoice promptly is because they spend their time sitting on a machine doing the next job," she said.

"How can customers be expected to pay their bills on time if they receive late invoices? The only people to get fat out of late invoicing are the bank managers, who gain extra interest charges on an overdraft."

Mrs Matthews said invoices from her company were sent out monthly and were generated by a computer controlled system. A professionally produced invoice created a better image for a business and was more likely to be paid promptly than a handwritten one torn out of a notebook, she stressed.

"Computers are not expensive, costing as little as £900, and they will deal with much of the routine work involved in the business."

But Mrs Matthews added that a computer often sat on the office desk and was used only by a secretary who came in for a couple of half days a week, simply because nobody else knew how to use it. "Contractors should become computer literate," she insisted.

Mrs Matthews then turned her attention to machinery purchasing.

"Contractors seem to want a bigger bonnet or a turbo, or just shinier paint. But the question I ask is: How will this affect the profit level of the business?"

If it was planned to take on additional combining, the budget and cash flow figures might show that the extra work did not justify the cost of a new combine, but buying a second-hand one might be profitable, she said.

"When the Matthews business makes a purchase decision, any finance requirements are worked out and the details sent by fax to at least three finance companies, so terms can be compared. And then we can decide where to place the business."

Planned purchase

That approach was possible with a planned purchase, but it was not available to contractors who failed to plan ahead and waited until a serious breakdown forced the replacement of a worn out tractor or machine.

"In an emergency purchase, the tractor is bought on the most expensive terms because it is unplanned, and it tends to happen when others are also making their unplanned purchases," she said. "Because the deal is being made at a peak time it is difficult to dictate terms to the suppliers – the machinery dealer, the bank manager and the finance company. There is also little time to look for competitive quotes.

"In short, it is the difference between being the passenger or the driver, and bank managers are more likely to lend money to the driver."

Lyn Matthews: "The reason contractors do not get their invoices out on time is because they spend their time sitting on a machine doing the next job."