credit management Archives - The Finance Team

Deck the halls: Three tips for credit management during the festive season

A healthy business outlays and receives just as in any relationship. At some points your business is in debt and at other points it’s delivering on promised orders and awaiting credit. The challenge for your business’s credit management is to ensure that you’re outlaying enough to keep transactions flowing, but not so much that you are mired in debt.

The risks around credit management are even higher during the festive season. As “sleigh bells ring”, many South African businesses go into a lower level of productivity and turnaround times are extended. The need to outlay credit often increases.

The festive season can also be seen as the spending season, a time of year when many over extend themselves and spend a little more than they should. Whilst extending credit over the festive season may seem like the only way to do business at this time of year, there are a few tips that can help you with credit management to keep credit at reasonable proportions without putting too much strain on your own cash flow and still keeping the business flowing:

Communicate your payment expectations to debtors early

Much of South African industry will grind to a halt in about a month’s time, after reconciliation day on 16 December. Many companies use closure as an excuse to pay bills late. Pre-empt this by sending a reminder email this week, and another at the beginning of December, informing debtors that your company will expect payment before they close for the festive season.

Invoice early for December

As you’re no doubt aware, most companies follow a standard procedure in terms of when they pay invoices. For example, some companies have an “invoice paying” day in the week or month; others allow for a 30-day period between their receipt of the invoice and payment. With this in mind, where possible, get December’s invoices out early (such as where a standard or predictable amount is billed). This will allow for companies to follow their regular procedure and still pay before closing.

Be diligent about contributing to your ‘bonus’ slush fund

If you haven’t been doing this already, this one is for next year. Many businesses include an end-of-year incentive bonus as part of payment packages, but this is very difficult to execute at a time of year when cash is already running thin, unless there’s been diligent planning and saving towards it. Include bonus planning as part of your annual review and forecast, identify how much should be set aside every month, and then do it! It may be tempting to use that cash elsewhere in a pinch, but keep reminding yourself that a happy workforce is a productive one. On top of that, your credibility as a manager hinges on delivering on what you’ve promised.

Proactive credit management during the festive season can mean a great start to your 2016 or one that is overextended and flavours the entire year with stress. Contact The Finance Team to find someone who can help you manage debt and cash flow on an interim or part time basis, and gear up for year-end. Put some effort into doing this now, and you will be able to truly sit back and enjoy your Christmas roast.

Photo credit: © Hongqi Zhang (aka Michael Zhang) | Dreamstime Stock Photos

November 26, 2015 / No Comments /

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.

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January 15, 2015 / No Comments /

Turn credit management red flags into green flags

We have all had it; THE deal that would make the business and take the company to the next level, however, all too often the dream deal turns into the worst nightmare that can sink your business faster than the Titanic. In this blog we will discuss how to turn credit management red flags into green flags.

For entrepreneurs and established businesses alike, making sure you vet your customer is probably the most critical part of doing business today. All too often, company management is focussed on making sales and achieving targets rather than establishing some sort of credit history of the potential customer or client. Whilst we agree that sales are the engine that drives the machine, all too often the company to whom you are selling to, does not have the necessary financial resources to actually pay for what they have purchased from you. So how do you avoid this kind of risk and turn credit management red flags into green flags by protecting the interest of your business and ensuring any opportunities you pursue are worthwhile?

Engage with the Credit Bureau Association of South Africa

The Credit Bureau Association (CBA) is a voluntary body that promotes fair and equitable services. It ensures the confidentiality, accuracy, relevancy and utilisation of data in accordance with international best practice and relevant legislation. The CBA’s mandate is to provide a framework for a sustainable and well-functioning credit information system, by facilitating fair practice within the credit bureau industry and to promote transparency, accountability, high quality credit reporting and sound business practices. The Credit Bureau Association (CBA) is committed to promoting equity, social justice and growth within the credit market by ensuring that credit information is reliable and accurate at all times. A credit bureau is a vital tool to enable responsible access to credit. A credit bureau provides lenders with information about how you manage your credit commitments so that they can quickly and easily assess how you pay your accounts so that they can make fair, consistent and responsible decisions about granting credit

Make contact with other companies that your potential customer has had dealings with

This is quite easily done. When you are in the initial stages of dealing with a potential customer or client, ask them which companies or individuals they have dealt with. They should provide you with some information upon which your financial director or manager can follow to get a better feeling of their business and if they are good payers and have a good credit history.

Become a solution partner to customers who are slow payers

All businesses go through stages where they are strapped for cash and are unable to timeously repay some of their financial commitments. Always monitor the payments of customers. If you find they are short paying or missing payment deadlines, schedule a meeting with their financial manager or CEO to see how you can structure repayments so that they are better able to meet their commitments. Work with them to find a solution. Most times this approach is far better than threatening with listing them at the credit bureau or any other heavy handed tactic. This being said, if they still continue to not pay, sometimes this is the only option prior to going down the legal route, which in itself is a very costly exercise.

Engage the services of an experienced financial executive

Companies should make sure that their financial manager or financial director has the necessary skills and experience to properly benefit the business. Experienced financial managers will be able to detect irregularities and identify credit management red flags before they impact negatively on the business and develop ways to turn credit management red flags into green flags. For smaller companies this type of experienced financial manager is unaffordable for the business BUT there are companies that specialise in providing the necessary financial talent on a part time or interim basis. These part time or interim financial managers and directors outsource their services to companies that either don’t need or cannot afford a full time resource. They are able to quickly asses any financial situation and advise the company leadership on how to best resolve or manage potential red flags for the business. Often, engaging with these highly qualified and experienced financial executives can make the difference between success or failure of your business.

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May 21, 2014 / No Comments /