From XU Magazine, 
Issue 29

Does credit management improve cash flow?

Increasing revenues is not the only way to improve cash flow.

This article examines the importance of credit management, how it can improve cash flow, and how it makes managing accounts receivable easier.

Every day, we talk to business owners who are struggling to make ends meet.

They wonder how they’ll break out of the never-ending cycle of debt and return to prosperity. We recognise this isn’t easy, which is why we’re passionate about credit management.

Credit management isn’t just about collecting money from customers or making timely payments; it’s also about lowering risk. Unfortunately, many business owners don’t think about credit management until they’re burdened with bad debt.

What is credit management?

Credit management involves reviewing and controlling a company’s customers, suppliers, and debtors to maximise income while avoiding bad debts.  

It’s about understanding how much credit you can offer your customers and ensuring they’re able to meet their repayments. 

Why does your business need credit management?

In a perfect world, businesses would only sell to customers who could pay right away. In reality, it’s common for companies to face situations in which credit terms aren’t honoured.

Recent research shows that the average small business spends at least seven and a half hours each week chasing late invoices. Companies adopt credit management techniques to manage these circumstances.

The most important reason for implementing a credit management program is to protect your company from financial damages. Poor credit control promotes bad debt and causes financial strain, which again can have detrimental effects on your company.

Bad debt is any money not paid back to the company. It’s an important metric for business owners because it directly impacts their bottom line.

Each year, approximately 50,000 businesses in the United Kingdom collapse due to cash flow problems caused by overdue invoices. Understanding why your business has bad debt is crucial to avoiding it in the long term.

A company that improves its cash flow can invest in its future. For example, if a business opportunity requires a significant investment, strong cash flow ensures the business has a reliable source of funds.

In this case, good credit management helps companies avoid taking out loans or selling assets to raise money.

Credit management also creates opportunities by opening up new sales channels (such as offering trade terms). It allows you to monitor customer payment history, track down delinquent clients or work out flexible payment plans.  

How credit management improves cash flow

Effective credit control can help organisations improve their cash flow by collecting money throughout the year. A company can employ a range of credit management methods to do this, including:

Enforcing stricter credit checks for new customers

When your business is struggling, it’s tempting to give customers more time to pay and extend the amount of credit available – but this increases the risk that you won’t get the money back.

Enforcing stricter credit checks stops you from entering into a financially draining agreement.

Keeping tight control of supplier terms

You need to keep supplier terms and conditions under scrutiny.  By checking that suppliers are charging the right amount, you can prevent cash flow problems caused by overpaying for stock or services.

Tracking and collecting outstanding invoices as quickly as possible

Take the time to monitor your accounts receivable. Having the information at your fingertips lets you stay on top of delinquent accounts before they become bad debt.

The sooner you send out invoices; the quicker businesses can pay their bills. The faster you act, the less probable you’ll write off money owed to you.

Requesting up-front payments from customers

It might be necessary to seek payment upfront. If your client doesn’t pay on time, they’re unlikely to have decent cash flow themselves, so the sooner you get paid, the better. If your client requests an early settlement, you might consider whether they need the credit and if it’s worth giving them a discount.  


Smart solutions to cash flow problems  

Improving your credit control operations could be as simple as employing new software. A credit management tool allows you to track the financial health of your business. The software will show who owes you money, how much is outstanding and what actions are necessary.

A strong credit management tool targets the root of late payments. It does this using the following credit control systems: 

Check: Manage customer credit limits to avoid bad debt and risk exposure.

In just a few clicks, Chaser can verify any client or supplier’s credit score. This report provides you with all the information you need about your customer’s business details and helps you avoid potential risks.

Track: Create custom reports, alerts, and reminders to keep track of your debtors so you can target your collection operations.

Custom reports make it easy to keep track of how your debtors are doing with their payments. You’ll gain insight into your accounts receivable and grasp your clients’ payment habits. 

Chase: Recover your money quickly and easily.

By automating the process, you can save time chasing down debtors. Chaser sends polite, personalised reminders for late or unpaid bills, so they’re at the forefront of the debtor’s mind when it comes time to pay.

Chaser handles the time-consuming task of reviewing each customer and supplier and makes sure you always send the correct email to the right person. 

Collect: Resolve debts without leaving your desk. 

Improve your chances of getting paid by providing your customers with instant access to several payment options.  

Managing supplier relationships gets complicated when your company reaches a certain size. Credit management software can simplify practices by standardising agreements and automating payment processing across vendors.

Recover: Recover debts from late-paying customers. 

Why wait for money when we can collect it right away? 

Chaser can identify overdue bills and decide what to do next.  

If a customer misses their payment, Chaser will immediately send an email reminder. If they don’t pay, we’ll refer them to one of our skilled debt managers.

A typical debt collecting agency relies on intimidating tactics to recover funds. Not only is this inefficient, but it harms business relationships.

Cont...

Our service contacts your customers, continuing the conversation your staff might not have time for. Chaser debt collection specialists are skilled in dealing with the most challenging account receivable issues without putting a strain on your customer relationships.

Reconcile: Sync with your accounting system. 

Chaser reconciles your credit management system with Xero and more. With our credit management software, you can save time on paperwork, invoicing, and tracking payments.

Chaser offers precise debt recovery and payment methods while taking charge of your credit control process. This way, you reduce bad debts while strengthening your relationship with those customers in good financial shape. 

Conclusion

Credit management can help your company stay profitable while allowing you to focus on other areas of your business that need attention. Old debts are unlikely to disappear overnight, but with a solid credit management strategy, SMEs can:

• Spend less time on repetitive tasks 

• Reduce operating costs 

• Lower the risk of bad debt 

• Increase cash flow 

If cash flow is one of your company’s biggest concerns, credit management is the answer.

Credit management helps you understand payment habits and determine which clients are reliable. It’s a complex system that needs constant monitoring and updating to ensure your business is getting paid on time, every time.

Small businesses typically have fewer resources for managing invoices. Fortunately, there’s an affordable solution.

Chaser accounts receivable software can help you take control of your business’s future.

Why leave it there?

To schedule a demo or a free trial

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