Keeping your cash flow looking healthy is a must if your business is to thrive not just over the long term, but on a day to day basis.
Even a long-term profitable business can be put under threat due to short-term cash flow issues, so if you notice your pile of overdue invoices is beginning to mount up, it might be time to take a fresh look at your credit control processes.
Terms and Conditions
First of all, have you issued payment terms and conditions to all of your customers? In many cases – especially in small businesses – Ts & Cs are either issued too late, or not at all.
You can’t simply attach terms to your invoices, as by then it’s too late to legally enforce them, so make sure all new customers agree in writing to your terms, including any penalties for late payment.
Outstanding trade debt
Knowing how much outstanding trade debt you have – or due and overdue invoices – gives you a better idea of how healthy your cash flow could be, if everything were to come in on time.
Of course, some payments will go overdue, and others will get paid anywhere between the date on which you issue the invoice, and the deadline date, but by understanding how much you are owed and the average time your customers take to pay, you can better forecast your cash flow in a week’s or month’s time, and beyond.
Background credit checks minimise your risk of exposure to bad debt, and so in turn improve the likelihood that your cash flow will be healthy over time.
Don’t be afraid to run credit checks on new customers, existing customers that are causing concern, and even regular reliable clients whose circumstances might have changed – it’s better to be safe than sorry.
Your invoices are not just information for your customers – they also give you a clear record of what you are owed and when.
Make sure you include full and detailed information on your invoices, and keep a copy of each invoice for yourself in an organised way, so that you can see the ‘breadcrumbs’ of your cash flow at a glance whenever you need to.
A ‘stop list’ is a worst-case scenario, when a client has behaved so badly that you simply refuse to supply them again, whether due to non-payment or any other reason.
Keep a fully detailed ‘stop list’ of anyone you refuse to supply, along with the reasons why, and make sure you don’t accidentally enter into a new arrangement with them further down the line – again, it’s better to protect your interests than to expose your cash flow to a potentially catastrophic debt risk.