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.