Five Effective Steps to Improving your Business’ Cash Flow

Posted by Jenny Esau

Managing Director of Credit Management Group UK

Mon 22nd, Aug

You’ve heard the phrase ‘Cash is King’ in business; however I have come across many businesses that put a lot of emphasis on sales, bringing in lots of new customers (which is great), but whilst doing this, credit management processes fall by the wayside, therefore they are carrying out lots of work but aren’t getting paid for a great deal of it.

Having effective credit management processes in place can do great things for your cash flow, as well as your relationship with the customer, due to the fact you will have regular contact with them, rather than frantically pushing for payment every few months because cash flow is tight.

Credit Checking

Credit checking prospective customers will highlight your customer’s ability to pay at that particular moment in time; you will be able to find any red flags against working with a customer, or you could indeed find a positive result that spurs you on in carrying out work. As this is only a snapshot of their current financial position, regular monitoring can also be an effective tool for continued work with a particular customer.

Refine your soft skills

Confidence is the key to the success of chasing for invoices. Credit control can be a nerve-wracking; I’ve often been told that credit control tasks are delayed constantly because the task of phoning a customer to ask for payment is daunting. Having the confidence to negotiate with a customer, handle difficult situations and understand the ins and outs of their accounts is essential to a good credit controller; much of the time, gaining this confidence is simply a case of thoroughly preparing for the call and being aware of the ideal outcome your business needs from the call.

Have strict procedures in place

Analysing your order to cash process is an effective way to identify any issues early on that could have a knock-on-effect later down the line and stop you from getting paid when you should. How the order to cash process works within your business should inform your credit management process. Don’t be mistaken in thinking a credit management process is just chasing invoices, credit management should run through the entire relationship with a customer, from the order (initial agreements, T&Cs, offer and acceptance), to producing,  delivering and invoicing (disputed invoice management) and finally, if all has gone according to the process, getting paid.

Know what the next steps should be

If all efforts have been exhausted to chase payment from a customer, with no success, you may want to consider taking legal action. I say all efforts exhausted as this is exactly what you should do before beginning any claim for money, the courts do not look kindly on those that haven’t followed pre-action protocols, and you could run the risk of your claim being struck out or being fined in costs even if you are successful in court. Aside from this, you should also assess your customers’ ability to pay you, should you receive judgement, there is no point in throwing good money after bad if your judgement cannot be enforced due to debtor not having any assets.

Understand the impact of insolvency on you, as a creditor

Although the rate of insolvency is slowly decreasing, your business still runs the risk that a customer could become insolvent whilst you are still trading with them. This is one aspect in which ongoing monitoring through a credit report agency is vital, as this could indicate trouble on the horizon for a customer.  Whist this information is very useful, it cannot guarantee it will predict a future insolvency.  If you do receive any adverse indicators, it will give you the opportunity to reduce your potential loss before your customer becomes insolvent.

These steps amongst countless others, can significantly improve your business’ cash flow if they are carried out in the correct way. Credit Management Group UK offer a number of credit management training courses that can provide you with the knowledge, procedures and confidence to have an effective credit management department within your business. Take a look today to see how it could help to improve your business. 

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