In a world of uncertainty - cash will still be king!

Over the last few years, many companies have seen turbulent times, whether it be through lack of cash, an increase in costs, staffing issues, utility or fuel bills, in fact, almost everything.

So, what can every business do to help reduce these pressures? Many scale back, some try to gain extra finance, some even undercut competitors, but all to what cost?

The leading reason for business failure is down to one simple thing, not having enough cash (liquid asset) to fulfil your liabilities (things you must pay for). There is a myth that a business is in this situation because they are not doing very well. In fact, there is a very fine line between ‘under trading’ and ‘over trading’, getting that balance right, and not putting yourself over or under that line is key.

Late payment of invoices is one of the leading reasons for insolvency among businesses.

If you think you might be affected, try asking yourself these questions:

1. How overdue are your invoices?

2. What is your billing accuracy?

3. Do you track your DSO? (Days Sales Outstanding)

4. What is the value of invoices under query?

5. Do you have any form of credit management policy/process?

6. What is your late payment policy, and do you enforce it?

Asking to be paid can still be an issue for some businesses, not overcoming this and resolving queries within a timely manner, can lead to an escalation of your cash flow issues.

Monitoring the average time it takes for an invoice to be paid and analysing error rates and invoice queries are key measurements to address and keep on top of, as without doubt, they will impact the liquidity of your business.

Why is cashflow such a taboo?

Cashflow may be considered a taboo subject because people often view it as private financial information. Additionally, discussing cash flow can sometimes be seen as a sign of financial difficulties, which some people may want to keep private. However, it’s important to remember that being open about cash flow can help individuals and businesses make better financial decisions.

So, what is credit management?

Credit management is a process of ensuring that a company or individual collects payment for goods or services sold on credit, while also minimizing the risk of non-payment. It involves setting credit policies, assessing creditworthiness, monitoring accounts receivable, and taking necessary actions to collect overdue payments.

Why is credit management so important for businesses?

It helps maintain a healthy cash flow and reduces the risk of bad debt. Effective credit management involves assessing the creditworthiness of customers, setting appropriate credit limits, monitoring credit usage, and promptly addressing any late payments or defaults.

What steps can businesses make to improve cashflow and reduce debtors:

1. Implement strict credit policies and credit checks before offering credit to customers. Afterall giving credit is the same as a bank loan.... You’re giving YOUR money away.

2. Agree clear payment terms from the outset. Don’t be afraid to tell them you expect to be paid, and when.

3. Ensure your billing the right company you are contracted to, and the correct address/email/person responsible for making payments.

4. Have your payment terms and bank details or other methods of payments on the invoice.

5. Make sure they have received your invoice and follow up a few days after issue and ensure there are no issues.

6. Setting up payment reminders and following up with customers who are late in paying.

7. Offering discounts to customers who pay early.

What benefits can a business receive when it has structured credit management processes?

• Improved cash flow: By managing credit effectively.

• Reduced credit risk: Effective credit management processes can help a business identify and mitigate credit risk.

• Stronger customer relationships: A structured credit management process can help a business build stronger relationships with its customers by ensuring that payments are made on time and disputes are resolved quickly and fairly.

• Increased efficiency: By automating credit management processes, a business can save time and reduce administrative costs, which can improve overall efficiency and profitability.

• Better decision-making: By having access to accurate and up-to-date credit information, a business can make better decisions about extending credit, setting credit terms, and managing cash flow.

Should businesses invest in training and upskilling credit controllers?

Very few companies look at training and upskilling credit controllers but bear in mind that they are the custodians of your most valued asset; it should be seen as a vital investment. Afterall effective credit control is essential for ensuring a healthy cash flow and minimizing the risk of bad debt. By investing in training and upskilling credit controllers, businesses can improve their financial stability and reduce the likelihood of financial difficulties caused by unpaid debts.

Would a business get better access to funding, finance, and investment if they have a good credit management policy?

A good credit management policy can improve a business’s access to funding, finance, and investment. Lenders and investors often consider a business’s creditworthiness when deciding whether to provide funding or invest. More and more underwriters are looking at how a business deals with their credit management function and has a robust policy.

A good credit management policy can demonstrate a business’s ability to manage its finances responsibly, show that can look after their main cash generating asset and repay debts on time, all of which can increase its credibility and reduce the perceived risk of lending.

THE BENEFITS OF OUTSOURCING CASH FLOW AND CREDIT MANAGEMENT

If you haven’t got internal capability in your business, bringing in a specialist to help your business improve Cash Flow and reduce overdue debtors, will have a positive impact on the financial health of your business.

Our member Tracey Westell from Pecunia has provided the guidance in this article and her business can provide the debt collection strategies and management, that would contribute to your business success.

Pecunia proactively works with businesses passing on their extensive knowledge, experience, skills & expertise in all areas of –

• credit management

• credit control

• credit control courses and training

• cash flow management and

• commercial debt recovery