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Pegasus Blog

5 tips to improve cash flow through managing customer debt

DATE

August 6, 2014


A regular income is essential to maintaining a smooth cash flow and the day-to-day running of a business. Late payments can create big problems for any business, particularly smaller ones with limited resources to chase late payments.

According to the Forum of Private Business, one in four small to medium businesses go bankrupt as a result of late payments and poor credit control so it really is vital to get customer debt under control. Here are our top five tips for managing your cash flow and credit control.

1. Know your customers

You’ll probably find that your customers fall into 3 main categories

    1. Customers that pay on time, every time

    2. Customers that pay once they’ve received a reminder

    3. Customers that you have to chase, chase, chase

It’s the final group of customers that can create major headaches for businesses. Identify these customers and apply a degree of caution when dealing with them. If they constantly pay late, ask yourself whether they are worth the resources needed to regularly chase payment. Whilst it might seem counter-productive to turn away business, it might be worthwhile to your profits in the long run.

You should also run regular credit checks on your customers as circumstances can change quickly. If your good customers start to fall behind on payments then it could highlight cause for concern so keep an eye on changes to help you proactively prepare for the worst.

2. Have a credit control process in place

A credit control process is vital to help you manage customer payments effectively. Have a clear due date on all invoices and don’t be afraid to ask for payment. Send reminder letters at regular intervals and always follow up with a phone call if necessary to determine the reason for late payment. It could just be down to an administrative error, or there could be deeper problems which might require a back-up plan. Consider allowing your customers to repay their debt in instalments – it’s not ideal, but repayment over time is better than no repayment at all.

3. Adjust your credit terms

Have you considered shortening your credit terms for late payers or new customers? Alternatively, you could think about introducing incentives that make it more desirable for customers to pay quickly – you might find offering early payment discounts work wonders if you can afford it.

4. Have a buffer

Try to have some back up cash for emergencies and unforeseen circumstances. It isn’t always easy for smaller businesses but if you’re a larger business, try to put a contingency fund aside for late customer payments.

5. Invest in robust financial software

Wouldn’t it be great to have a helping hand? Invest in a tool to help manage your cash flow and debt so you can see real time updates of your financial status - see who owes you, how much and by when. Any good financials software will also alert you when payments become overdue to help you take immediate action and stay on top of customer debt.

To learn more about Opera 3’s Credit Management Centre, contact us on 0800 919 704.