A credit management guide for small businesses

Author The Know-it team
Dec 29, 2020

Having great credit management is fundamental for small businesses. This can prevent cash flow problems and help to grow your business. Credit management is the process of giving credit, collecting due credit and managing all other credit-related functions. For small businesses, good credit management can mean all the difference between a business thriving or failing.

When you first enter the world of business there is so much to consider. In most cases, small business owners become the wearer of many hats and must become human resources and finance directors in addition to running the company. If your business isn’t in the finance sector, credit management can be a whole new world that may be difficult to understand at first. In this guide, we focus on how making sense of credit management for small businesses and help you to get the most out of your credit to increase your cash flow.

Identify current cash flow problems

If you haven’t taken the time to look at your credit management, there may already be some cash flow problems in place. Firstly, it’s important to identify any current cash flow problems so that you can take steps towards fixing them and ultimately reduce your debtor days.

A cash flow problem arises where your debts are larger than the money you have coming into the business. Usually, cash flow problems can arise as a result of too many outstanding uncollected invoices, inability to sell products or services or a lack of a business model that works. Identifying where the problem originates can help you to come up with an effective solution.

Have a credit control process set up

Having a credit control process in place will help to mitigate your credit risk. Credit control is the process used by businesses to chase outstanding invoices and issue credit, mitigating risk by chasing payment for outstanding invoices. In larger businesses it is common to have a designated employee who will handle all credit control processes – usually this person will be known as a credit controller.

However, in smaller businesses, it may be that there are currently not enough resources to be able to have such a designated person. In these cases, personnel with little or no experience in credit control can be given the task, often with little or no credit management help.

Like many things in life, managing credit can be easy if you have the right tools for the job! If you have an efficient credit control system in place you can save time and money.

Automate your credit control

As mentioned above, using an automated system can help to save you time as it does a lot of the leg work for you. Intelligent credit control systems are designed to work alongside credit controllers allowing you to synchronise your sales and purchase ledger and connect with your accountancy apps.

In turn, the credit management system will give you full visibility of your customers, money received and money owed. It will also give you visibility of all the companies or suppliers who have provided your business with credit. This allows you to easily see at a glance your outgoings and incomings and see a summarised picture of what your cash flow looks like.

Credit control platforms can also assist with the payment chasing process. Following invoicing, credit control platforms can help you chase for payment by scheduling and sending payment chaser emails, letters and even text messages.

Agree credit terms in advance in writing

Always have written confirmation of the agreed credit terms before you do business. Having written confirmation prior to offering credit will keep your business safe should any account disputes arise. Be sure to have a safe, confidential, and organised space to store these records. Having digital records is better than paper. Paper records can easily become damaged, lost and read by unauthorised members of staff.

Your credit management system should be able to store any essential documents and credit terms. Usually, these are organised per account so each document should be within the credit information of each customer. That way, if you need to access the credit terms you can easily and quickly locate them. Credit management platforms are more secure than a filing cabinet with each authorised person having their own login information and access levels.

Carry out thorough credit checks

Carrying out credit checks is a sure way to know who you’re about to do business with. A company credit report will provide you will all sorts of useful information such as previous payment behaviour, how long it takes them to settle an account, company credit scores, as well as general company information like financials and who the directors are.

All this information will help to inform your business decisions and ultimately tell you whether or not you should engage in business with the company you have pulled a credit report for. If you have a long list of existing and recurring customers, be sure to regularly credit check them too. Credit checking your existing customers will inform you of whether there have been any changes to the company that might impact their ability to pay you on time. Sophisticated credit management platforms will be able to accurately monitor your customers and notify you of any changes such as administration or liquidation.

Choosing your credit management solution

The tools you use to monitor and help you carry out the credit control process are essential in managing your credit as a small business. From picking the right accountancy software to knowing where to go for your credit reports and using tools that provide you with accurate, real-time information is fundamental to your credit management.

Know-it is a cloud-based credit management solution that allows you to manage all of your credit control processes from the convenience of one place. It easily integrates with leading accountancy software packages such as QuickBooks, FreeAgent, Sage and Xero giving you full visibility of your invoicing. Know-it streamlines the credit control process allowing you to credit check, chase for payment and monitor overdue unpaid invoices. As our intelligent platform is cloud-based you can easily access your credit from any device, anywhere – all you need is a secure internet connection and your favourite browser to access it.

Discover how you can be a Know-it-all by accessing your free trial that will give you unlimited access to the platform for 30 days.

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