Good credit management starts with your own systems. The best way to ensure that you get paid promptly is to ensure you have good systems in place that increase the cashflow into your business and minimise the risks of not getting paid. These five steps will help you strengthen your cashflow and eliminate many debt problems before they occur.
When it comes to the task of chasing debtors for money owed to your business, prevention is far better than cure. In other words, do everything possible first to make sure that your invoices are paid on time and you will eliminate many later problems.
Here are five steps to help you:
1. To get good results, follow sound procedures
Establishing clear rules, systems and procedures at the start is the best way to make sure that you avoid problems later.
Avoid offering credit
Work at reducing the number of credit accounts you offer. If possible, avoid extending credit at all. Try to get payment straight away - you thereby eliminate all subsequent credit problems. Many inexperienced business owners lack the confidence to ask for settlement straight away, but if you’re trading with individuals rather than businesses, try encouraging payment with the goods or when the work is finished. For example, tradespeople should ask their customer “Are you happy with the job?” and when they say “Yes”, produce the invoice. The customer’s natural reaction to you writing an invoice is to reach for their wallet or chequebook.
Even if you’re dealing with commercial firms, try to offer credit only to regular customers who have a proven record of paying on time. The results will improve your cashflow and minimise the unproductive and unpleasant aspects of chasing debtors.
Accept credit card payments
Accepting credit cards is a way of allowing your customers to opt for a credit option while leaving the risk with the Bank. For more information on accepting credit card transactions ask your National Bank Business Banking Manager.
Be choosy in extending credit
Many debtor problems arise because credit has been unwisely extended to unsuitable individuals or businesses. New businesses in particular are typically eager to gain sales, and feel awkward about putting customers through a credit application process. Credit is often automatically given to all comers, or extended on the judgement of the owner or manager without proper checks. This is a recipe for debt problems.
Although there is always an element of judgement involved in extending credit (clearly some larger or well-established businesses do not need to go through the credit check process), the process should be applied to the majority of businesses wanting credit.