by Angela McDonald – www.optimumrecoveries.com.au
No business can afford to overlook how it manages its credit cycle.
Economic conditions might be improving but this does not mean businesses can take the focus away from cash flow management. Even though there are positive economic signs, economic volatility is still expected this year. If you put a credit management system in place during the financial crisis, it is important to strictly adhere to the program this year, even as the economy may be recovering.
If you don’t have a documented credit management system, now is the time to implement one! Many businesses are unpleasantly surprised when they have a look at how much money their debtors owe and how long, on average, it takes their debtors to pay.
The new year is a great time to tighten debt recovery processes, which will ultimately put more cash in the bank! Here are three key tips to ensure your debt recovery systems are working to improve your cash flow.
Tip 1 – watch for the warning signs & be consistent with credit checks
One of the most frustrating situations businesses may face in January is coming back to work to find debtors have disappeared over the Christmas break. The debtor has usually strung out payments in December, or given promises to pay in January when they are expecting a cash influx. Alternatively, the debtor may have consistently broken credit terms or asked to increase credit levels.
These are clear signs that the debtor is in trouble. To avoid this situation, it is important to do thorough background checking before extending credit. It is also essential to run a credit report to ascertain whether a creditor has lodged a default or if any litigation has taken place. If you find an impaired credit history during background checking think very carefully about whether you are prepared to extend credit at all. Remember, it’s not uncommon or rude to ask for upfront payment in almost any industry.
[br] Tip 2 – be disciplined about credit management
When economic conditions improve it can be tempting to focus on sales and profits rather than credit management. It is certainly crucial to maintain a focus on sales. But it’s equally as important to be consistent with credit management, no matter the state of the economic climate. To ensure consistency, ensure your business is:
- issuing invoices promptly – don’t wait until the end of the month!
- placing an actual “Pay by” date on the invoice, rather than “in 30 days”
- following up invoices as soon as they fall due
- working with a good debt recovery firm to help improve credit management systems, and
- Confirming that late paying customers are happy with the services you have provided to ensure there is no dispute around payment.
Offering discounts for early payment of invoices, or discounts for credit card payments, are other great options for improving credit systems. Make sure it’s also easy for customers to make a payment by offering a full range of options, including electronic funds transfer, BPAY, credit card and cheque payment.
[br] Tip 3 – develop a collection plan
A formal debt collection plan is a must to help recover debts quickly and to improve cash flow. The plan should stipulate:
· the process for debt recovery, including when first contact is made when a bill remains unpaid,
· the stage at which you will involve a collection agency (the earlier the better to help increase chances of successful debt recovery), and
· at what stage to commence legal proceedings against a debtor.
[br] It is important to train your staff in the plan’s processes to ensure it is followed correctly. Also ensure all customers sign a credit application and establish a sound credit policy for your business.
[br] Higher receivables represent a burden for liquidity. Optimum Recoveries Pty Ltd provides expert support for collection based on years of experience as a partner for creditors in commercial markets. Optimum’s collection specialists have in-depth knowledge of the Australian business culture, as well as a solid understanding of the economic factors that influence payment behaviour. These experts are supported by our online debt collection database.
[br] To find out how you can strengthen your debt recovery processes in 2010 and at the same time improve cash flow management, call Optimum Recoveries’ Director Angela McDonald today on 07 3166 8888, or email her at
amcdonald@optimumrecoveries.com.au.
