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Early Warning Signals for Credit Management Survival

The Better Payment Practice Group quotes:
'Cash flow is the life blood of every business and should be protected as a priority. A good credit management policy will include a strategy for credit checking customers, a well-planned collection process, and a system for dealing with queried invoices'.

This Group identifies some early warning signals to help improve your business credit management policy.

Hitting the overdraft Limit
Regularly hitting or breaching the banks credit facility means you should review your asset management policies in general. Also, address credit management in particular.

Extended Aged-Debtors List
If debtors continually pay outside the agreed credit period, you need to assess the collection methods used. Identify areas for improvement.

Good Payers Slowing Up
If normally prompt payer begin to slow they may have notice your collection system is sluggish.

Quality of Complaints
An inefficient system can cause customers to take advantage and use spurious complaints and queries to get credit extended. This can improve their cash flow at your expense.

Administrative Excuses
'Computer Failure' and excuses similar may be a sign the customer knows your system is lax and easy to exploit.

Customer Insolvencies
Credit insurance is recommended, or a strong internal credit risk assessment, can protect your company. Especially if it relies too heavily on one customer, or a range of customers with vulnerable cash flow.

Supplier Stops
Inevitably, a supplier will halt service to you if you have a history of exceeding you credit with them.

Credit Ratings and Market Rumors
Both damage business reputation and will make it harder to attract new business, further restricting your cash flow.

Arrears of PAYE, NIC and VAT
Seeking credit from the state by not paying tax is NOT the way to go. Government departments have the power to seize assets without prior warning.

Low Staff Morale
If you business shows signs of distress, employees will follow suit. Difficulties in cash flow can have serious repercussions even to the event of losing staff, which compacts the problems.
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