Doh! If You Don't Send An Invoice You Won't Get Paid!

Seems obvious, but it is an all too common failing in all too many businesses. A devil may care attitude to actually billing customer for the work, goods and services that have been supplied. In these credit starved times a punctual, nay, obsessive approach to invoicing is called for.

Here at Severn Delta we issue invoices daily for all goods shipped that day, like most FMCG companies. But our suppliers are not so sharp. Our financial year is Jan to Dec so we have just passed the half year mark in 2009, and we have a substantial chunk of accruals outstanding for goods and services which we received BEFORE the end of December 2008, but for which we have to receive an invoice.

Now I don't know how long it typically takes you to issue an invoice to your customers but I put it to you that six months is a little extreme.

We will be happy to pay the suppliers in question. No problem. We ordered the goods and services and we received the goods and services. BUT if you don't send us an invoice you just ain't gonna get paid!

To give you an idea of the scale of this slackers approach to the fundamental act of invoicing, the value involved totals £30,000.

And that is just Severn Delta, a £6million turnover company. Scale it up across the UK economy and how large is the big black hole of un-invoiced value?

So if you are reading this and are wondering if there is anything you haven't billed your customers for, go and check now. Get the invoice/s out today.

The sooner you do, the sooner you will get paid.

And that is what you are in business for... isn't it?

Assets, Competencies & Positive Churn

We have a million pound asset in our factory, at least that is what it would cost to replicate.

My Technical Director is a chemist and all round R&D dynamo.

We have a supplier base whose abilities we like to stretch.

We have a Brand which continues to grow rapidly. IP is an asset.

The first is a fully automated wet wipes production line. The second conjured a new cleaning formulation with Lemon Tea Tree & Thyme to Put on a bespoke fabric from the third to create a product to be sold as part of our Sarah Smith brand.

It goes on shelf in Waitrose this month replacing one of our slower selling lines.

Assets, competencies & Positive Churn.

Here endeth the lesson.

Where Ignoring Everybody gets you....

The Great Inventory Correction (Again)

Back at the very end of 2008 I pondered what seemed to be a huge Inventory Correction. Four months on it is clear I was right and economic activity across many industries has been hit hard by inventory slashing of pandemic proportions as discussed in two Financial Times articles today which can be read here and here.

We have not been immune from this trend and have seen sales hit in particular parts of the business. Oddly the very ones that the economists will tell me should be prospering in a downturn. You know, the kind of things that people trade down to rather than the other way.

I think there are three reasons why this has happened.

The first is the great inventory correction effect. When inventory is being managed at sub replenishment levels (i.e. being driven down) your sales fall even if your customer's sales are steady.

The second is the reaction of others whose sales are being hit for the reason stated above. For example if I supply a value for money equivalent of a leading brand (as say, a supermarket own brand for example) and the leading brand in question moves £10million from TV into price slashing promotions to buy some volume there is very little I can do about it. The effects may be short term but they hit my sales all the same.

The third is miscellaneous other factors outside of my control. These effect demand for the kind of products that the contract manufacturing part of my business make and supply. For example: if my customer pushed their prices up to insure their cash margins against falling demand this may drive my sales down further whilst delivering an acceptable amount of cash to my customer. By attempting to insure against falling volume they guarantee a fall in volume but compensate themselves for this regardless of the impact on us.

We have encountered examples of all three so far in 2009 but are nonetheless holding our own. We have widened our distribution base steadily over the past 2 years and this is serving us well. Growth of our flagship Sarah Smith brand remains strong with annualised growth of 26% despite a set back or two along the way!

But if the tide turns in the inventory correction it will be welcome all the same!

Here Comes The Sun: Boo / Hiss / Hooray!

The Met Office Summer Forecast 2009 predicts an antidote to the the washed out summers of 2007 and 2008. Damn and Blast!

Back in 2007 in my post No Alarms and No Surprises I mentioned my obsessive reading of such things and have posted on more than one occasion that we have a Happy When it Rains approach because a decent % of our revenue comes from a product with a rainy sales trigger.

So a long hot summer though perhaps a welcome boost for UK business (e.g. Sterling has tanked so holiday in Blighty, enjoying the sun and spending what money you spend here at British tills rather than Jonny Foreigner's) is not, generally greeted with a cheer round here!

But, consider the post below about our recent acquisition of PitRok. You won't be surprised to hear that the seasonality is counter to my business as it stood before the acquisition.

Another reason why the acquisition made sense.

So,

Though I will admit to commenting as the rain falls down, "nice weather for us!", I shall have to get used to saying "Here comes the Sun... Hooray!?"

Making An Acquisition In A Recession

Last Wednesday 22nd April my company Severn Delta acquired the business of PitRok Ltd. and in particular ownership of the PitRok brand of natural deodorants. Given that at a glance this has looked like something of leap for Severn Delta, not to mention that we have made the acquisition in the teeth of a recession, I thought a few words on the subject were in order.

1. How does this make sense for Severn Delta?

The logic is three fold:

a) The distribution fit is good. Both Severn Delta and PitRok sell fast moving consumer goods into UK multiple retail. The overlap is strong with three exceptions - one where we are stronger by a long way and two where PitRok is stronger. The net effect is the opportunity to broaden the distribution base in both directions.

b). We have acquired the PitRok brand and this will increase the % concentration of branded business vs contract manufacturing.

c) Price and ease of absorption are attractive. We have bought at a reasonable price a small business with strong cash flow and a low level of complexity that makes it straight forward for us to take over and absorb administratively into Severn Delta.

That caveat is of course that any acquisition features some of Mr Rumsfeld's "unknown unknowns" or as Sig put it me that in any acquisition you are:

" walking out into the dark night and there is no flashlight strong enough".

So we will see how we get on!

2. Don't you know there is a recession on?

Yes. But this is a factor in favour of the acquisition rather than against. Firstly because this makes the price perhaps more favorable than at other times (although we have paid a fair valuation of the business) and secondly because even though the bank margin may be higher than in previous years it is some of the cheapest money we have ever borrowed and our total borrowings are still low compared with our early history!

A third point is that it strengthens the business as a whole. It gives us greater market breadth, additional cash flow, distribution reach and a new brand in the stable with range extension possibilities that lie within our competency reach.

3. But aren't you a textile company?

Yes and no. We manufacture textile consumer goods but many of these are in the form of moistened wipes with personal care formulations, so we already have a number of skin care products in the portfolio that are not so far from a deodorant.

We work under the regulation of the European Cosmetics Directive already, and our preference for natural and organic components rather than petrochemical alternatives is again a good fit. Our new "ABSOLUTION" by Sarah Smith is an example.

More importantly we have grown our Sarah Smith brand from zero to a level where it is twice the size of the PitRok brand, doubling sales twice since launch in late 2005. We will aim to apply the same methodology to PitRok to ensure its longevity as a strong, if niche brand and hopefully delivery some growth into the bargain.

Ambushed!

Yesterday afternoon I was ambushed by three members of my staff. To be precise three of the four most senior members of my staff!

Before departing for the USA almost a month ago I had refused to sign off a purchase order that required my authorsiation. It doesn't matter what it was for but at the time I felt we were jumping the gun. We didn't need the goods or in this case service in question at the time. 

A month on the deadline from the customer has come forward and we now need to press the go button. Hence the ambush. 

The lesson: by stalling to the last possible moment the cash in question will have had an extra 30 days reclining in my bank account before being paid to the supplier in question.

Don't spend it unless you have to.

Don't spend it until you have to.

And,

Pay when you have to and not before.