Companies establish credit policies for good reasons. Unless you are doing credit card sales (and there’s even some risk there) you are sending product or services to someone that has promised to pay you. You are, in effect, loaning them money. You are acting as their bank. So, just like a bank, it’s reasonable for you to establish terms and conditions around the money that you’re loaning them. How much will you loan them, and for how long? These are important questions, and companies usually only ask them at the start of a business relationship.
Even under normal circumstances, business has its ups and downs. Sales rise and fall. The cost of raw materials change. Interest rates change. Customer interest changes, and you need to react to it. You track how things change in your business on an ongoing basis. But once you establish a credit policy with a customer, companies rarely if ever review their situation to make sure that the credit policy that they established is still valid. Of course with COVID, business fortunes have changed dramatically, and a business that was stable last year might be in a tenuous state right now.
In fact, even though your business may have come through this financial crisis in fine shape, you may be standing on the edge of a precipice because of one thing that you have little control over – your accounts receivable. You may be fine, but if your largest customer is struggling, that large receivable balance you’re depending on might be worth nothing because they are unable to pay.
Here are five ways that you can check on your customers to make sure that they are still worthy of the loan that you’re granting them week after week:
But you can’t check on each customer every week to make sure that they’re still OK. Here are some steps to make sure that you control the amount of outstanding Accounts Receivable that you have, and improve the likelihood that you won’t be stuck holding some worthless paper.
Managing your company’s finances takes more than just looking at your income statement at the end of the month. It means actively managing every part of your company that affects cash – money that you spend or money that you receive. From payroll to inventory, from invoicing to paying bills, from collecting cash to signing long term leases. Each of these contributes to the financial core that makes your company run – money. And, you actually have control over each aspect of it. Even Accounts Receivable, which is totally dependent on your customers opening up their wallets and checkbooks, is within your control. You are responsible for the terms and conditions that set the manner in which your customers buy from you, and pay for those products and services.
If you aren’t happy with the results that you’re getting, then do what you need to do. Those payment terms are what you set up when your relationship with the customers was established. You set it one way before, you can set it a different way now. Because the world is different, and the circumstances in which you operate are different.
Make changes today that affect profitability tomorrow.
[caption id="attachment_21572" align="aligncenter" width="640"] CEO World Features Larry Chester: A Disaster in the Making – Your Credit Policy[/caption] Our CEO,
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