Howes Percival
Turning contracts into cash
Miles Barnes Partner
Commercial Team Howes Percival
As we all know, cashfl ow is the lifeblood of any business and often the reason why some succeed whilst others unfortunately fail. Whilst maintaining a strong cashfl ow position might seem like the domain of your Finance team and accountants, the truth is that being on top of your contract terms is one of the best ways to keep money coming in when you need it. Here are my top tips on how getting your contracts right can improve your cashfl ow:
Pricing for the future Whenever anyone is negotiating a new deal, a huge amount of work goes into getting the best day-one pricing possible, but this is only ever the beginning not the end of the story. Where I often see problems though is further down the
line. T e world moves quickly and the real challenge with contracting is to cover off what the future may hold. Hopefully, your contracts already account
for
infl ationary increases each year or have assumed infl ation built into your pricing. If not, they should, otherwise you’re effectively reducing your margin year on year. Where possible, infl ationary increases shouldn’t be subject to negotiation, they should be automatic. Beyond inflation, consider what specific costs
might impact your profi tability down the line? Are you particularly susceptible to increases in the national minimum wage, certain commodities or energy costs? If so, don’t just assume an infl ationary increase will cover you as it may not. Consider what those pain points could be and make sure you can adjust prices for them. Top tip, if you’re having trouble getting mid-year
increases agreed, off er to base the increases on either an established commodity index or on proven cost increases for which you can provide evidence. Finally, as well as the actual numbers, you also need
to consider the timing for future price increases. If your suppliers want the ability to adjust prices, what notice would you need to pass on those increases to your customers and avoid you taking the hit for them.
Beware of deductions Once you’ve addressed your headline price, you then need to make sure you’re clear on how the contract terms could aff ect how much of that price you will actually receive or pay. There are a multitude of adjustments which could
impact cashfl ow on any given contract, including: ■ Service credits ■ Volume rebates ■ Liquidated damages ■ Retentions ■ Disputed invoices ■ Customs duties
Where people usually go wrong with them is by not
making sure their contract terms match what they expect to happen in practice. When putting together a new deal, have your commercial team and your legal team talk to each other to go through the deal mechanics fi rst and then put them into the contract.
FINANCE
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60
