The money owing to a business for goods or services sold to customers is a critical asset in the balance sheet and is critical to the success of the business. Economic cycles can make affect the cash flows of businesses and 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 proposed 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, terms, conditions, security agreements, credit applications and guarantees;
Individually designed credit policy;
Assessment of recoverability of debt, and
An efficient method to recover outstanding accounts.
Management can make more secure financial projections by having these simple measures in place.
EFFECTIVE RECOVERY PROCESSES
The recovery process does not begin when the debt is due and owing, but rather before a business chooses to make a credit decision after utilising its credit management policies and procedures. The recovery processes is collaboration between the business and its lawyers who should both:
Assess the state of the debt;
Authorise and issue demands, and
Train the business’ staff on credit management techniques and debt recovery procedures.
These underlying processes support credit decisions with a degree of payment protection but are not enough to provide a multitude of bottom line benefits.
Credit insurance relies on both the preceding factors and gives the business the opportunity to:
Reduce bad debt reserves;
Expand sales with safety;
Secure better borrowing terms, and
Replace non-deductible bad debt provisions with tax-deductible premiums.
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.
WHAT CAN AACAD$® RECOVERIES DO FOR THE BUSINESS?
It can assess the risk exposure, and for a fixed fee arrangement, will:
Prepare the necessary credit management documentation for the business;
Assess the state of the debtors and make recommendations;
Prepare and issue demands on debtors, and
Provide access to its legal and non-legal advisors to support the business’ staff