The start of the new year provides small businesses with the perfect opportunity to improve their credit management and cash flow conversion cycle.
Cash flow was one of the biggest causes of small business failures last year, with around 90 per cent of enterprise insolvencies due to businesses putting their tax debts last to supplement their working capital.
Managing cash flow is more than just good practice for business; it is key to survival. Here are five tips for improving your credit management and cash flow in 2016:
Implement a clear credit policy
Routinely review your business’s credit policy to ensure it remains appropriate for the business’s risk profile.
Document your terms of trade
Terms of trade need to be documented and include aspects like prepayments, deposits, guarantees, security and payment terms.
Understand your customers
Routinely carry out credit checks for new and existing customers to identify any issues that can influence credit terms and limits.
Develop a clear debt recovery process
A business’s process for collections should be clearly mapped out, understood and strictly followed by all staff. Businesses who are disciplined in their collections process are more likely to see this kind of behaviour in clients who will follow the same practice after seeing the importance of paying on time.
Make provisions for bad debts
Good credit management is about safeguarding profitability. Provisions for bad debts should be made in the budgeting process to minimise the risk of impacting on profitability.
For more tips on cash flow, contact us at Leenane Templeton on 02 4926 2300