Cash flow management is one of the most important aspects of a business that should never be taken for granted. If the cash flow management of a business is not smooth, it can face numerous financial and reputation-based issues, which just become more complex as the time goes by.
Big businesses that supply goods to their customers on credit mostly go through numerous debtor management issues, which can lead to financial issues for the business and a negative business cash flow.
Following are some tips for such businesses to effectively manage their debtors:
1- Adjust Accordingly
No client is the same. A business has a set of old clients that are trustworthy and new clients who cannot be trusted so much. Therefore, a business should keep the credit allowance and credit terms based on the type of customer it is dealing with.
Moreover, important information of all the clients asking for credit terms, whether they are new or old clients, should be sought which includes credit score, bank history, bank terms and financial transactions. All of this information should be evaluated before deciding the credit terms or thinking about allowing credit to the clients. If the financial information provided by the client seems too risky, the business can run a credit check on the client, just to be safe.
2- Make Everything Clear
While dealing with finances, businesses should not leave a room for doubt for the client. All the conditions should be well-communicated to avoid any future problems. Make sure that you give a precise due date of payment to the clients and stress it over so that it is taken very seriously.
If the payment is scheduled to be received after a few months, bi-monthly reminders should be sent to the client to assure that a thorough follow-up is in practice. Not notifying the client for a few months and then straight away calling them up for payment is a major mistake that most businesses make which results in delayed payments.
All the credit terms should also be well-understood by the client so that future scrutiny can be avoided.
3- Provide Numerous Methods
Businesses that provide their customers a vast range of payment options are more likely to get paid on time as it increases the ease of payment. Methods such as online banking and internet payment methods (for small payments) should be set-up so that the client can make the payment with absolute ease.
Financial experts suggest that huge payments should be broken down into installments to ensure that timely payments are received and that the clients are not intimidated with paying a huge amount all in one go. This works best in keeping the cash flow positive and also decreases the financial risk in case the client defaults.
5- Default Cases
In cases of big payments, there is a higher chance that the debtors default in which a business can choose to hire a debt collection agency, if all the negotiations fail.