In an increasingly strained economy, what are the top credit management tips for small businesses?
Growing a business in a strained economy is tough. Getting paid by your customers in a strained economy is even tougher.
There is little doubt that people are feeling the pinch.
Businesses that sell their goods and services to other companies on a trade credit basis are specifically under pressure because their clients may battle to pay what they owe and this causes cash flow problems.
To adjust to this new reality, businesses (especially smaller ones) have to quickly adapt their thinking to survive. But how do businesses adapt?
Here are some tips from credit management company Debtsource:
Even big businesses might not pay on time
There are so many large businesses and SOEs in financial distress right now, that you can no longer rely on them to pay their accounts on time. Every debtor, however small or large the company may be, and irrespective of who their shareholders are, needs to be treated with the same circumspection and diligence.
Insure your debtors
Credit insurance protects businesses against the possibility of debtor default and is an extremely effective tool for dealing with credit risk in any business. Smaller businesses that cannot survive large bad debts should strongly consider this option.
Do not rely on business rescue to save your bad debt
In a business rescue or liquidation scenario, there is often not enough money to pay all creditors and often smaller businesses as low-ranking creditors do not receive a pay-out. Moreover, statistics show that only 13 percent of companies that go into business rescue are ultimately saved in one form or another.
Very few businesses fail if they have a healthy cash flow which means is it really important that your customers pay their accounts on time. This requires maximum diligence in managing debtors and requires businesses to adapt their processes and attitudes to the realities of the market conditions.
Source: Debtsource credit management specialists.