If you extend credit to your customers you are effectively providing finance to them for the credit period.
If your business does not have the cashflow to support the credit it has extended you could be just one bad debt away from insolvency.
Credit Insurance can be a valuable tool in a company’s credit control armoury and recent years have seen an explosion in availability of different types of cover.
From traditional Whole Turnover to Catastrophe or Single and Multi Buyer cover brokers can now offer a variety of policies to suit most businesses.
When it comes to cashflow, it isn’t just about ensuring your invoices are paid on time. It encompasses the entire flow of money in and out of your business and covers your businesses dealings with your own suppliers.
So do you treat your suppliers as you would like to be treated?
Invoicing is an integral part of every business, so taking the time to ensure that your paperwork really works for you is often a wise investment.
In part three of the Managing Cashflow guides from the ICM and BIS you can find a wealth of useful information to help your company avoid the common invoicing pitfalls, reduce delays and remove excuses for non-payment.
After ensuring your company really knows your customer, knowing when you can expect your invoices to be paid is the next step in an effective credit control process.
Agreeing payment terms in advance helps to ensure both parties accept and understand their obligations and allows for the creditor to forecast the arrival of funds, a key survival strategy in today’s turbulent economy.
One of the single most important aspects of effective credit control in any business is ensuring that you know exactly who you are dealing with, before any credit is provided.
If you don’t know who your customer is, it is impossible to correctly identify the risk involved in providing credit and means your company is doing business “in the dark”.
Unless you have the luxury of an in-house credit controller - which is something even some larger firms can't afford - you might be tempted to take a head-in-the-sand approach to chasing overdue invoices, and simply try to pretend they never happen.
Sadly they do happen, even from trusted long-term customers, and that can lead in turn to some soul-searching: Why didn't they pay? Did I do something wrong? Is there no trust in business any more?
If you're a Guardian reader, you may have seen Safe Collections' collections and partnerships manager Adam Home quoted in a Guardian Professional article on May 12th.
Tim Aldred's piece looked at the case for credit control teams as a way for businesses to safeguard their cash flow and, ultimately, to stay in business by avoiding late payment.
Adam was happy to share his ideas with Tim for the piece that you can find here: "Does your business need a credit control team?" ((c) Guardian News & Media Ltd) and we're going to expand on some of those points below.
Whether you're in business on your own, or part of a company, it's essential to protect your income - and one of the greatest areas of risk is when you extend a line of credit to a customer.
Remember, any time you carry out work, or provide goods or services, without taking payment upfront, you effectively become a creditor.
That means you need to think carefully about several different factors, for instance:
Making sure you get paid promptly every time, without fail, is about more than just issuing invoices promptly (although that can help).
There are several ways to increase your chance of receiving payment in full and on time - and here are some of the main points to consider.