Efficient credit control.
Cash is King: an expression that I am sure that most of you are familiar with. And it is a truism that a business forgets at its peril; no business ever failed because of having too much cash. So, in this era of the lack of financing available from the banks, it is important that you keep a tight rein on the business’s cash flow and maximise the internally generated cash. One of the best ways of doing that is to have an efficient credit control system. It is very common for small businesses to neglect this area of the business, with the consequence that much of the capital of the business is tied up in debtors and, often, a high level of bad debts. This is one of the reasons that so many start up businesses fail. So what does a business need to do to prevent this happening? What constitutes a good credit control system?
Reluctance to ask for money.
Small businesses are often reluctant to ask their customers for money; they believe that they will lose business by doing so. The first thing to remember is that it is pointless making a sale if you do not get paid for the goods or services supplied. In fact you should consider that there has been no sale until you have been paid for those goods and services. Therefore, it is important for the small business to get over the reluctance of asking a customer for money. After all, if you have provided a good product or service it is not to much to ask to be paid for it.
Granting credit is not compulsory.
Another point to consider is whether you should be granting credit to your customers in the first place. Granting of credit is not compulsory and you should definitely do some checking on your customers before granting credit. Being paid up front, even partial payment, is both safer and is a great boost to the cash flow of a business. If you do grant credit one of the things that make it easier to ask for money from customers is to make sure that the customer knows exactly what is expected of them with respect to the payment for the goods or services sold to them. This should be made clear before the sale takes place and so it is no good just putting the payment terms on the invoice. So ensure that you convey your terms of business at the earliest opportunity. An important element in any good credit control system is billing. Make sure that you raise invoices promptly and that these are sent out immediately. It is good practice to send invoices electronically. Not only is this cheaper, but they will get there quicker.
Don’t forget to chase!
Lastly, don’t forget to chase the tardy payers. Send out regular statements and call the customer before the debt is too old. Debtors will pay those suppliers that give them the most hassle. Make sure that you make cash the king. Make sure that the money is in your bank – not your customers!
The Good News…..
If you are a business owner and this blog post has piqued your interest and you would like to know more… The good news is we are running a seminar or workshop if you like that has the same title and will give you all the information that you need – Want to find out more? Then click this link to book your free ticket to our “Are you King of your cash? or are you the Court Jester?!” workshop being held in Bristol on Tuesday 10th October!!