Cash flow is the lifeblood of Businesses. It enables them to invest and expand. Without it they cannot be sustainable. To make the most of opportunities, a business needs confidence in their cash flow. This means getting to grips with credit management.
How well do you know your customer?
You must know who you are dealing with. You need to know the person you are trading with is credit-worthy. Should things go wrong, the more you know about them, the more effectively you can take legal action, should it become necessary. Gaining as much knowledge in advance of doing business is a sensible way of protecting yourself.
What are your payment terms?
Payment terms are essential, because if something goes wrong and someone fails to pay you on time for your product or service, then without agreed terms, how do you prove late payment?
Sound credit management is not about firefighting, but putting measures in place to reduce the likelihood of problems occurring when it comes to payment. Set out and agree your payment terms in advance. Do this in writing. It’s strongly advised to confirm these agreed terms before placing an order, or agreeing any work.
Are you invoicing effectively?
It might sound obvious that if you do not raise an invoice then you will not get paid, but turning this into an efficient process will help keep you up to date with what people should be paying you. The main thing to note is that invoicing must be a priority. It is the first step in helping you achieve, and maintain, the cash flow that will allow your business to run and grow.
Getting it right from the start
If you get your invoicing right at the start of the process, it reduces the chances of you having to spend time and energy issuing credit notes or follow-up invoices. Include your terms and conditions with the invoice, with special reference to interest chargeable for late payment. If you are VAT registered, your invoices must be compliant with HMRC VAT requirements.
Can you chase payments?
Completing the sale is when the customer pays you. If they fail to pay you then they are hanging onto money that should belong to you. It is therefore important to follow up non-payment and to ask for what is rightfully yours. However, getting this right means putting the right processes in place.
Consider payment methods
Keep all your records, including proof of delivery, copies of invoices sent, and, crucially, a record of all payments received and actions taken where this has not occurred.
What if your reserves are running low?
Regardless of how many orders you have, or what your profit margins look like, without adequate cash flow your business will be in trouble. Cash flow requires a strategy. You must plan your requirements diligently, including cash forecasts that you regularly update.
Can you protect your credit?
You can trade with protection against bad debt by taking credit insurance. By reducing the risk of bad debt, credit insurance can strengthen your balance sheet and may make other forms of financing more easily available to you, including overdrafts or invoice factoring.
Are you out of options?
Sometimes, despite every action and process you take, you cannot get paid. You can take further action, but you must be sure you want to commit to it. For example, if your customer who has failed to pay you is insolvent, will this gain anything? Also, you must consider the costs involved in taking any action set against the money you are owed. In other words, is it worth it?
Professional debt recovery
Another option is to commission a specialist commercial debt recovery agency to act on your behalf. We will have the expertise and resources to provide the necessary extension of your credit management process. Specialised debt recovery works because it provides a dedicated service that is focused on achieving results. Consider commercial debt recovery as a logical, effective extension of your credit management policy.