Effective Credit Management

Effective Credit Management: Most business failures are traced back to poor cash management. The inability of a business to collect payment for its services/products will eventually result in failure of the business.

Cash is the blood supply of business and, it needs to keep flowing in and out to ensure long term sustainability. The cashflow forecasts prepared by you depend on your getting paid in full and on time.

The following rules should be adopted and complied with:

  • Know your customers and their trading track record
  • Get trade references and do credit checks
  • Prepare clear terms of payment and confirm them in writing to your customers
  • Seek prompt settlement of debts
  • Send out your invoices on time and ensure they are correct
  • Don't put debt collection on the long finger. You should always know how much you are owed, from whom and when it is due i.e. Aged Debtors listing
  • Don't be afraid to lose business by asking for payment
  • Set these practices in motion from day one as if you allow bad practices to develop it is extremely hard to rectify at a later stage.

Always remember a sale is not a sale until it is paid for. If a sale is not paid for it is a bad debt.

Don't be afraid to set credit limits for your customers and ensure you do not exceed the limits set.

 

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