It is estimated that small businesses are owed £17bn from debtors at any one time – £6.8 billion of that paid late.
While other research has indicated that approximately 10,000 UK businesses fail each year as a consequence of late payment.
There are many factors which lead to a business failing. However at the point where a business ultimately fails the common factor will always be cash-flow. How many companies are forced into liquidation with a healthy bank balance? Good cash-flow management is essential, especially during difficult times. The old adage of Cash is King has never been truer.
Good cash-flow management is primarily driven from a business credit control function and the management of debts. The importance of good credit control is illustrated by the following simple example: A company with a turnover of £1m could effectively increase cash balances by nearly £15,000 if it is able to reduce the average number of day’s credit taken by customers by five days.
Businesses appear to be more concerned with losing a sale rather than considering the consequences of giving credit without checking the history of the customer. Businesses need to consider certain factors before granting credit no matter what terms you might decide to grant, if any. It might be a case after careful consideration that the risk is acceptable but until you have gone through the process how will you know that a company you are just about to extend credit terms too are good for it; simply put you don’t, until you do a financial risk assessment.
One of the most fundamental issues that need to be addressed is a credit rating of a company by using someone like Amril, you can get information regarding their credit rating, how long they have been in business, what outstanding loans they might have and most importantly see the financial accounts.
When you are looking to extend credit terms to a potential client you need to make sure each and every client fills in and signs a credit agreement form with at least two references from other suppliers. Giving names, addresses, contact details with at least one other additional telephone contact number. You cannot rely totally on the references given as the potential client is not going to pass you to a supplier where payment to them has been erratic. If you can investigate other companies your potential for a bad debt reduces significantly, and this is the first step in good cash-flow management.
If you would like details on how Amril can support your Credit Control function then please contact us.