The Credit Management Training Guide

Learn How to Put in Place Credit Management Procedures

Credit Management: Keeping the Cash Flowing

WE CALL IT CASH FLOW for a reason. Flow is a term meaning “consistency” and “continuity” and businesses without it almost inevitably become insolvent. We can help you build it into your business, every step of the way.

credit management small business

Zzzz! Yes, credit management may seem boring but without it, you can’t manage your cash flow, and lack of cash flow is one of the foremost reasons small businesses go under.

ACCORDING TO THE Australian Bureau of Statistics, more than 60 percent of small businesses cease operating within the first three years of starting. It’s a figure that many excited would-be entrepreneurs have thrown at them when they announce to the world that they’re going into business for themselves. And although this figure is definitely scary and off-putting, if you understand where businesses go wrong, you’re already half way there.

Reasons for Small Business Insolvency

The Australian Securities and Investments Commission released a report into corporate insolvencies for 2011-2012 that found 44 percent of businesses suffered poor strategic management, 40 percent had inadequate cash flow or high cash use and 33 percent suffered from trading losses. (Source: Huffington Post Australia).

When a business fails, it’s almost always due to cash flow problems that arise from late-paying customers, or debtors, and unpaid invoices. But as the number of small businesses in Australia have increased in the last five years, so too have the number of closures resulting from inefficient cash flow.

Last year, in its annual corporate insolvency report, the Australian Securities and Investment Commission (ASIC) reported that inadequate cash flow had now become the leading cause of corporate insolvency during the 2014-15 financial year.

Late Payments and Time Spent Unproductively

Not every business suffering cash flow problems goes insolvent right away. Many more, especially those operated by sole traders, struggle on with clients and customers who don’t pay on time or, worse, not at all. Indeed, a study last year commissioned by PayPal and QuickBooks Intuit, found that Australian small businesses are owed a collective $26 million in unpaid invoices. That’s roughly $13,200 owed to each business at any given time, for which business owners will spend an average of 12 days chasing each year.

Perhaps 12 days out of 365 doesn’t seem like much time spent chasing invoices, but look at it this way: the ACCC estimates that nearly three-quarters of all business invoices are paid late, while recent figures released in Dun & Bradstreet’s quarterly Trade Payments Analysis report found that businesses wait an average of 44.9 days for payment, with businesses in the ACT, NSW and WA waiting the longest: between 46 and 50.4 days.

Applying good credit management principles every step of the way

It doesn’t matter which way you paint it. Credit and debt management is one of the most overlooked aspects of operating a small business and it’s affecting the business owners who can least afford it. Indeed ABS figures show that the closure rates for businesses with an annual turnover of under $50,000 are far higher. So how to do more than just survive, and indeed, prosper? You need to implement measures to manage your debtors.

GET THE GUIDE!

ASBC Credit management guide

Join our Start Up Academy Cloud Package to receive our complete guide to Credit and Debt Management Processes and Systems for Small Business. Understand how good credit and debt management principles can be applied at every stage of dealing with new clients from credit assessment, quoting and deposits, monthly management and enforcement.

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