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It cannot be stated strongly enough, and as many times as we do on this site - Cash is the life blood of any business
This means that you need to have cash available at all times in order to ensure that you will stay in business. Giving a Customer credit is as good as giving them a loan for which you will collect no interest
It is, however, a necessary requirement of good business relations to offer credit facilities to your good Customers but do not be over generous and allow them to keep your money for too long
Good Credit Control is a basic function that has to be a part of your every day operation. At all times (every day, ideally) you should know where your money is and when it will be available for you to spend. This involves keeping track of your outgoings in the future and when you will receive your income. Good accounts will provide that information and if you are operating a hand entry system you will need to identify what your cash status is at a particular time, what you are committing to pay suppliers and what you will be receiving after that moment
Professional accountants will tell you to hold on to your money as long as you can so only pay your bills when it is absolutely necessary. This may work in some cases where your supplier is lax in their own credit control but is is very bad practice since your own credibility will suffer and you will for sure hit the 'stop' sign when it is most inconvenient to you. Pay your bills on time and become a preferred Customer to your suppliers and you will get that extra service when the time comes
Likewise be sure to keep on top of your receivables. If you must give credit, do so in an organised fashion. Make sure that you have a good feeling about a Customer's payment record. Don't let the receivable with any one Customer get too high - if they suddenly start placing bigger orders than normal be sure to discuss your payment terms with them. Head your invoices 'Invoice & Statement' and put a 'Please Pay by' date that is specific and no just 30 days or a reference to your Terms of Sale. The Customer never reads your Terms since they will invoke their own 'Terms of Purchase' anyway. Add the phrase 'If there is any reason that this invoice cannot be paid in time please notify us immediately'. Putting a date on your invoice will do nothing to ensure that payment will be on time whilst that phrase allowing them to talk to you will enable you to know what to expect in the way of getting your money
There are good Customers and bad Customers. The good ones you keep, the bad ones you collect what is owed and then only supply them in future on a 'money with order' basis or 'pro forma'
Comments and suggestions for improving this site are appreciated and should be addressed to administration
Last Update 28-Feb-2010
Date first published 07-Nov-2005
