Lessons about Business credit management - Deepstash
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Savvy credit management

Savvy credit management

Every credit policy tells you what your company will do if a customer doesn't make a payment on time. It also tells you what process you have for doing that. You have to have a credit policy because it affects your cash flow and the risk of loss if customers do not pay.

7

127 reads

Establish credit limits

Establish credit limits

Having credit limits in place will fundamentally help your business in two ways.

  1. It establishes clear rules for you and for your customer
  2. Credit limits work as a protection for you and your business.

7

109 reads

Check the credit rating of your customers

Please check the credit rating of your customers before you extend them credit. If you don't, you'll be in for some nasty surprises. Your customers will be in the habit of not paying their bills on time and if you don't find this out on time you're going to have wasted a lot of money.

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87 reads

Have someone dedicated to tracking debtors

The person's job is to make sure invoices are sent on time and follow through on aligning your credit management strategy with every customer interaction. You need someone responsible for making sure the money is paid to your business.

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81 reads

Credit terms should be set by the supplier

Credit terms should be set by the supplier in agreement with the customer, because there are many limitations involved when a buying organization decides to set their own credit policies.

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84 reads

A credit application form/agreement

This is a credit sales agreement and should include the terms and conditions of credit sales between a creditor and a customer. This document, once signed by both parties, sets out the agreed credit terms in accordance with the law and may also be referred to as a 'credit sales agreement.'

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80 reads

Late Payments.

Getting paid within 30 days of invoice date is the goal as defined in most small business cash flow management systems. Late payments can have a series of negative effects. For example, late payments may increase the risk of bankruptcy or insolvency, which normally lead to a loss of a contract and an interruption in cash flows to the business. Furthermore, late payments will lead to a reduction in working capital which is essential for any business to continue operating smoothly. 

7

71 reads

Factors that affect business credit terms:

  • The type of customer,
  • The size and financial strength of the buyer,
  • The supplier's operating cycle,
  • Seasonality,
  • Payment history,
  • Supplier's profit margin

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75 reads

CURATED BY

buzzedison

Business Strategist, Investing in Africa, Tech Evangelist.

CURATOR'S NOTE

Credit management is my biggest lesson for the past 24 months. I personally lost $6, 000 to a client in Malta because of a lack of good business credit management on my part. I don't want you to make the same mistake.

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