Generous payment terms for customers
The time between cash going out and coming into your business needs to be well-managed in order to avoid cash flow problems which can lead to insolvency.
Cash flow problems can soon materialise if you offer generous payment terms to your customers, without establishing an effective credit management policy. Giving your customers large amounts of credit, combined with a passive approach to collecting your own debts, means that cash coming into the business is delayed. Meanwhile, your own bills still need to be paid.
By credit-checking new and existing customers, closely managing customer credit accounts and acting swiftly to recover outstanding debts, you can reduce the likelihood of late payers affecting your own company’s cash flow.
Loss of a key customer
Losing a large customer can be a huge problem for businesses with a small customer base, or businesses that rely on one or two key accounts for most of their sales. If one of your key customers suffers financial difficulty or goes out of business, a considerable proportion of your own cash inflow disappears.
Therefore, rather than operating with a one or two large contracts, it is best to seek out new business with a range of new customers. This will spread the risk and reduce the impact that another company’s insolvency has on your own business.
