How Important Is Credit Control And Cash Flow Management For Your Business?

Very.

That’s it, case closed.

Of course it’s not! The reality is much more complex than that, and while the answer is the same for every business, the way you focus on it will be very different. Now that we’re in a new financial year (and a new world in terms of the economy, thanks to Covid-19), it’s the time a lot of business owners take a look back at their finances from last year, and work out how they can improve for the next. And so we want to help you refocus, and answer the age old question – how important is credit control and cash flow management?

The Constant Problem

It’s a new month. For a lot of companies, that means it’s time to check the accounting software, start chasing overdue invoices that should have been paid at the end of last month. Sounds like a simple enough job, but the reality is it often doesn’t get done. Other things get in the way, new work comes in, meetings are arranged, other admin takes priority and before you know it you’re halfway through the month and those invoices still haven’t been chased – or paid. Now you’re in trouble, as the longer the invoice is left the more likely a simple overdue payment turns into a debt, and the less likely the client is to pay.

Any form of aged debt is bad for cash flow, and if you have multiple aged debts that start snowballing into each other, you could quickly end up with no cash flow at all. With debts piling up you’ll be less able to pay your suppliers, staff and contractors on time, and you won’t be able to accurately forecast your cash flow and make decisions with confidence.  In short, you end up in a loop of uncertainty, and could easily fall into financial trouble without much warning. In times like this, that’s the last thing you want.

The Role Of Credit Control

For larger companies who have an internal credit control department of their own, it’s a simple task to audit its effectiveness and make sure you are getting the best value from the team, and ensure all process are being followed correctly. For companies who don’t have that luxury, the job of managing credit and payments often falls to admin staff who are less skilled and not properly trained in recovering money, which can be very bad for your business. But whichever model of credit control you’re running, there are some questions you can ask yourself to work out if your processes around invoicing and payment control are working or not:

• Is cash flow starting to become an issue?
• Has it been an issue before? In other words, is this a recurring problem?
• Are you starting to worry about the number of unpaid invoices you have?
• Is your list of debtors increasing, not decreasing?
• Are your customers routinely paying late or exceeding your payment terms?
• Is the financial position of your customers starting to worry you?
• Do you know what to do next?

If any of these questions hits a bit close to home for you, then it’s time to take control of your credit control and start actively managing your cashflow. After all if you’re not being paid on time (or at all), then you’re effectively giving another business a free loan, letting your money subsidise someone else’s cash flow. And unless you’re a bank, that’s a bad thing.

At Debtcol, we specialise in helping businesses take control of their cash flow, collect on their debts and run effective credit control moving forward, so their finances is one thing they don’t have to worry about. Our expert teams are fully trained with years of experience in collections, credit control and running financial background checks on customers, so you can be sure you have the best team for the job, without the cost of hiring a full credit control department in house. For more information, just get in touch with the team today.