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Manage your credit control - improve your cash flow

Written by: Kathryn Crockford AFA

Article Overview: Improving cash flow is not just brought about by increasing income, which is usually achieved through sales and marketing. Neither is it brought about just by cutting back on expenditure. This article does not aim to address those issues. Instead, it will outline some simple, easy to apply accounting procedures. If followed, these have proved to be successful in speeding up the payment of outstanding customer debt and steadily improving the overall health of the bank balance.

Manage your credit control - improve your cash flow

Credit control is not just about contacting your clients to ask for payment. It begins the moment you raise your sales invoice.



Manage your sales invoicing

Regardless of whether you sell goods or services, your sales invoices will dictate how quickly you get paid.

Presentation is the key.

Sales Invoices need to be clearly addressed, not just to the company but if possible to the individual who will authorise its payment.

In most cases a neatly typed and accurate invoice will be paid faster than one which is handwritten, possibly from a sales invoice tear-out book.

It also presents a much more professional image for your business.

Manage your sales ledger

Make sure your sales invoices are issued and sent out on a regular basis.

Keep all accounting records up to date - not just your sales invoicing but also the recording of the payments received against those invoices (cash allocation).

If you do not know who has paid you, you cannot know who has not paid you and you cannot ensure that all your income comes in on time.

Manage your customer queries

This is perhaps one of the most important areas you can work on to improve your cash flow.

If a customer has a query on even one of several invoices they have received from you, it is likely that they will delay payment of the whole batch until that query is resolved

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Manage your credit control

Customer relationships are important. Not just in achieving regular sales but also in ensuring that those sales are paid. Obviously in some smaller businesses you will be dealing with the same person who is ordering from you also to obtain payment.

Wherever possible establish who authorises and makes payments. If it is not the person who is ordering from you it will improve your sales relationship significantly if you do not chase them personally for every cheque.

If you have a large client base and it is too time consuming to speak to everyone, make sure you send a statement at the end of every month. Some companies will use the non-arrival of a statement detailing what is outstanding as a reason not to pay.

You can also use the other side of credit control to your advantage in managing the way you pay your suppliers.

Take advantage of any credit terms on offer rather than paying each bill as it arrives.

Make one, or at most two, dedicated "cheque run" days each month to pay your suppliers. This is a standard procedure in larger companies. It allows you to set aside a specific time to keep your suppliers paid up to date. The alternative is rushing for your cheque book or on-line banking details every time someone calls!

If you are successful with your credit control on sales you will have a much clearer view of your available funds and planning your payment days accordingly will allow better cash flow and management of your funds.

Conclusion

These suggestions have all been proven to work in improving cash flow and are all simple and inexpensive to achieve.

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Article Tags: accounting, bank balance, cash flow, credit control



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