Your business and credit management

A small business owner recently explained one of the reasons he had moved to using smart phone technology to bolster his point of sales devices. “People used to say, “the cheque is in the mail,” he said. “Nowadays, they say, “I’ll EFT you.’ It could be a month before you see any money.”

Technology may have in many ways transformed our world into an instant one, but when it comes to being paid, the wait is often just as long today as it ever was. Despite having the technology that enables instant payments, and the capability to screen debtors and creditors better than ever before, we often still fall prey to slow and unreliable payers. That’s why your company needs a strategy to minimize the damage and frequency of such eventualities. And that strategy is known as credit management.

What exactly is credit management, and why is it important to your financial well-being?

According to Investorwords, credit management is a function performed by a company to “improve and control credit policies that will lead to increased revenues and lower risk “. It’s an important part of how you do things, and can drastically affect your cash flow. Without the working capital to get things done, your business could come to that devastating cul-de-sac known as “liquidation”. Incorporating a few steps into your credit management process can help you avoid this. Here we focus on three recommendations, as put forward by the Australian Small Business Development Corporation.

1. Make your terms and conditions clear.

Spend some time thinking about what terms and conditions of payment would best suit your business. Do you make regular deliveries and see cash regularly coming in and out of the business? Or do you provide large projects that require significant time and resources for one single, large payment? Such considerations will affect your payment terms. Decide whether you will require cash on delivery, whether you will allow for 30 days’ payment or something in between. Contemplate whether you will institute penalties for late payment. What will be your policy on returns or refunds? Will you provide some sort of incentive for those who pay early?

Remember that the terms can be altered for strategic clients and suppliers, but that your company should be consistent overall. Clearly communicate your company’s terms and conditions to all employees who will interact with the payment process, from procurement officers to debtor clerks. Consider an incentive programme incentivising employees to ensure your company’s terms are consistently met.

2. Invoice promptly.

There’s no use insisting that you are paid on time if you take 30 days to ask for the money in the first place. Outline a clear and reliable process to ensure that your company puts out an invoice at the same time as goods and services are provided.

3. Take regular stock of your debtors.

Take the time to develop a strong records management system. Ensure that your book-keeping staff is disciplined about recording who owes what. The Australian Small Business Development Corporation makes a further suggestion.

“Take a proactive approach to credit management by contacting clients a few days before the due date to remind them a payment is due,” they recommend. “Ask if they foresee any problems with meeting their payment.” If the answer is yes, implement your debt collection practices without delay.

If the thought of developing debt collection policies and conditions for payment, fills you with dread, help is at hand. The Finance Team has a network of highly qualified, experienced, financial professionals who can assist your company put effective credit management processes in place. The team can provide your company with the assistance you need, for the time that you need it – be it on an ongoing, part-time or ad hoc basis.

Image credit: clemson.edu