When most people think of credit management, they often think about minimizing debt. However, credit management is so much more than paying off your creditors. It also includes building relationships.

Through these relationships, business goals can be achieved, which will lead to an increase in revenue. Ideally, credit management can set you on the path to a brighter and financially stronger future.

Developing a credit management strategy requires clients to set goals. While the most obvious goal would be to pay down debt as quickly as possible, there are other credit management goals to include in your plan. These are safeguarding customer risk, paying off debt, and improving your cash flow. These goals work together to strengthen your financial position for the long term.

Safeguarding Customer Risk

Credit management plans often include steps that you should take to manage your expenses. While not all costs can be reduced or eliminated, getting your expenses under control is possible.

When spending decisions need to be made, it’s important that each one is done carefully. There should be a process involved that allows the best possible expenses decisions to be made with your money.

Paying Off Debt

At Charles Advisory Services, we understand that paying off debt can feel overwhelming, but it’s one of the key elements of proper credit management. Without settling your debt, you’ll be unable to move forward with much financial success. That’s why so many people believe that credit management is solely about paying your creditors; paying it down is so important to the success of your ventures it should be one of the main focuses of your strategy.

Improving Cash Flow

Getting the cash flowing more efficiently in your business is essential for paying off your debt and building a strong future. However, to do this, you’ll want to employ the most reliable ways to improve your cash flow. Some of these methods can include using up-to-date software, and any training programs that you or your employees may benefit from.

A good way to do this is to develop a cash flow budget. This is a visual representation that can help you be proactive about balancing your revenues and expenses. A cash flow budget should include:

• Revenue forecast
• Expected inflows
• Expected outflows
• Debt payments
• Operating expenses

Be sure to update your cash flow budget when things in your business change. That includes any plans you have to grow your business that may impact your cash flow. By keeping it up-to-date, you’ll be able to stay on track with your financial plans.

Other actions you can take to improve your cash flow can include:

• Expand your customer base
• Regularly review your invoices and stay on top of overdue accounts
• Have a plan for cash flow gaps
• Invest in credit insurance
• Utilize invoice financing

Customer Credit

Although you want to be on good terms with your customers, it’s important for your business to have a process for managing your customer credit and policies. A key aspect of dealing with customer credit is to have a good understanding of what your business can afford to offer for customers. You don’t want to overextend yourself, particularly if customers do not pay on time.

Ensure that your policies are clear, fair and that they are clearly communicated to any of your purchasers. Your process for handling overdue accounts should be transparent to everyone, especially your employees. This can include phone calls, courtesy letters, and even passing the account to a collection agency. It’s important during any collection process that you keep the relationship with your customer in mind.

Another way to handle customer credit is to consider ways to encourage your customers to pay on time. Perhaps you can offer a discount for early payments. Alternatively, you can apply fees to any accounts that are past due. Don’t forget that both of these policies should be communicated to your customers.

It’s important to keep in mind that while late fees can be a source of income, accounts that are well past due are more likely to be write-offs. They can also prevent some business revenues from being used as valuable capital.

Trim Expenses

Credit management plans can also help you discover ways that you can reduce your expenses. Cutting back the amount of money you are spending can help you improve your overall cash flow situation.

Another way to trim the amount of cash flowing out is to identify inefficiencies and redundancies that can be done away with. For example, consider employing temporary workers instead of hiring full-time staff, and automate processes to reduce costs. You may also want to revisit your promotional budget and see if you can cut costs on those materials without losing quality.

Make Your Cash Work for You

One of the benefits of credit management is that it can help you develop healthy habits that can improve your financial situation for the future. One of these habits is learning to put any extra cash that flows your way to work for you. Use it to expand your business, pay down your debt, or have it on hand for capital.

Reach Your Credit Management Goals

While credit management is often thought mostly of finding ways to reduce debt quickly, there are many other aspects of the process. Some of the benefits of having a credit management plan include being able to trim expenses, put your cash to work for you, and properly managing customer credit.

When done correctly, a credit management strategy can help you achieve your business goals, improve your cash flow and build a stronger, healthy financial future.

If you are interested in learning more about credit management, call Charles Advisory Services at 416-915-9007 or contact us here.