Are you financing someone else’s cashflow? What is Cashflow theft and how to avoid it?
You’ve heard of the bank of Mum and Dad but have you heard of ‘The cash machine of customer credit?’
Let me explain…
This is when your customer takes an extended period of time to pay your invoice for goods or services you’ve already supplied.
When you give credit, in effect you give an interest free loan of your money, without security and without any certainty of being paid!
Show me a bank that would do that?
Now, in your customers eyes that may make you look like a really nice guy, but, the reality is you’re funding their business at a risk to your own.
Cashflow is the financial momentum of your business. It’s like the oil in your machine. If the cash is in your customers account, and not in your account, it’s going to constrain your decision making.
You won’t be able to buy new stock or invest in your business or do the things you need to do.
If you’re not getting paid by your customers, then you may not be able to pay your suppliers. That’s going to affect your credit score and might also affect your ability to buy new product.
This ones easy. What happens if your customer doesn't pay?
So how do we solve this?
With these top 10 credit management tips of course!
1. Don't give credit
It’s a crazy notion I know but ask for payment or at least part payment up front. You will be amazed at how many good customers will pay.
2. Always Credit Check
Don’t lend your money to customers unless you know they are good for it. That applies to new and existing customers because circumstances can and do change.
3. Raise Invoices Promptly
Issue invoices a quickly as possible after the product or service is delivered – preferably the same day.
4. Deal with Queries
Deal with queries quickly and completely. Often raising queries is a good way for customers to delay payment so don’t let them.
5. Make It Easy to Pay
Ensure your invoices make it clear what your terms are and how you can be paid. Give as many options as possible i.e. BACS, Cheque, Direct Debit etc.
6. Be rigid with your payment terms
Stick to your payment terms and be prepared always to ensure they are adhered to
7. Have a systematic approach.
Credit control should be systematic and meticulous with a clear process to follow through with every debt due. Keep detailed records of all interactions.
8. Send Statements
Monthly statements are a great way of reminding customers of amounts due and when. They also highlight any missing invoices sooner.
9. Being Personal is best
Letters and emails are good but a telephone call or visit is usually better. Be friendly and polite but be firm.
10. Don't be afraid to lose the customer
Don’t hesitate to take legal action to recover your money if all else fails.
Remember a sale isn’t a sale until the money is in the bank!
So when it comes to customer credit….No more Mr Nice Guy!