Overdue payments are a big problem for small businesses – so how can you take steps to avoid these issues stretching your cash flow to breaking point?
1) Don’t make credit management less important than sales.
Make sure your sales team takes credit into account, and don’t let sales people overrule credit management. Though in small businesses these two roles often aren’t distinct, you need to consider both angles on every sale.
2) Make your credit management a sales enabler, not an obstacle.
Credit management should help you make sure conditions are there so that you can confidently issue credit and invoices to customers. Checking credit worthiness and payment habits of customers will help – you’ll also be able to build strong relationships with prompt payers and even win new business through incentives.
3) Develop a defined credit policy – and stick to it.
This doesn’t need to be hundred of pages long – but it does need to clearly set out the conditions under which you can say yes to customers, as well as when you’ll start to consider a payment being overdue. Make sure all your customer facing staff are up to date. If you deal with big customers your policy might be different, but make sure this is equally well thought out and clear.
4) Be organised
Invoicing and collection is what turns your orders into cash flow. Set up a routine and stick to it, sending reminders or similar as well as collection dates. Some customers might look out for signs of disorganisation to see if they can get away with late payment – don’t let them do this to your business.
If you struggle with late payment, then invoice finance can help. By unlocking the cash tied up in unpaid invoices you can reinvigorate your cash flow and make sure you’ve got the breathing room to grow and develop your business.