The money owing to a business for goods or services sold to customers is both an important asset in the balance sheet and to the success of the business.
Economic cycles, threats, competition and political forces can affect cash flows. A business can protect itself against non-payment by its customers by implementing:
Strategic credit management policies and procedures;
Effective recovery processes, and
Customers who buy goods and services do not normally warn suppliers of any financial difficulty, as continued supply (and cash flow) is essential for them to avoid closure.
Credit insurance for domestic and international transactions is one preventative measure available to business if the credit management and recovery processes are not successful.
STRATEGIC CREDIT MANAGEMENT
Good managers do not make decisions on credit without reasoning and sound research on the future customer. It is inappropriate and lacking in management skills to rely on instinct when making credit decisions. Management must plan and implement strategies that ensure the business has:
All its documents up to date, such as:
a) Terms and conditions of trading, credit applications and guarantees
b) Individually designed credit policy
c) Security agreements under the Personal Property Securities Act 2010
d) Assessment of recoverability of debt
An efficient method to recover outstanding accounts
Management can make more secure financial projections by having these simple measures in place.
EFFECTIVE CREDIT CONTROL
Recovering a debt does not begin when the debt is due and owing, but rather before a business chooses to give credit after utilising its credit management policies, and procedures, which must underpin the success of the debt recovery process.
Credit insurance in combination with these issues gives the business the opportunity to protect cash flow in a tax effective manner.
By reducing risk, credit insurance enables the business to increase facilities to existing customers, safely expand credit to new, unknown accounts, or enter new domestic and international markets with confidence.
POLICIES, PROCEDURES & DOCUMENTATION
Behan Legal can review current practices, policies, procedures and documentation that you have in place, alternatively make recommendations for their creation and implementation that encompasses best practice principles (including the preparation of specific terms and conditions to meet your requirements).
NEED MORE INFORMATION
Behan Legal advises and assists clients on these important issues. For an appointment, call 03 9646 0344