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In a credit crunch don't be your customer's bankers!

Supplier: AR Cash Flow
14 October, 2008

Market crash, does it sound familiar? You have seen it all before, but were you prepared to avoid the damage this time? What to do? You have heard it all before, you are busy running your business and your are not a market forecaster.

In factoring we have seen how profitable and healthy businesses suddenly seem to fade into obscurity, here, some simple suggestions on how to run a profitable business in tough economic times and enjoy what you do best, run your business.

Keep your cash flow flowing. Ensure that you look into your debtors regularly, do not be satisfy with a monthly report from your credit department.  Debtors exceeding your trading terms should be contacted immediately and consider reducing their credit terms, this approach could save you time and money in chasing bad debts.

Finance Alternatives, If your Bank has tightened your credit, although you have a sound business, why not looking at alternatives, factoring, being one of the most accommodating alternatives. It finances your invoices based on the strength of your client, not on the property security.

Set up credit alerts, major changes in purchasing patterns could indicate solvency issues. Large purchases suddenly could indicate that your client has been denied credit elsewhere, a credit check could save you money and headaches. Ensure that all invoices get paid promptly.

New customers, run credit checks, and set up clearly their trading terms. Grow with your customer, do not become their bankers.

Keep a good product mix, customer diversification, if you manufacture or provide a very specialised service a product mix may not be possible, however, a diversified customer base will ensure that you are less affected by the collapsing of some industries and you may benefit from the growth of others.

Talk to your customers, call in unexpectedly, you’ll be surprised how much you can learn by just talking to them face to face.

Look at your creditors closely, are you getting a fair price, healthy trading terms, could you get the same product or service from a competitive supplier, if the answer is yes to all the questions, congratulations, but if you answer is no to one or more, it is ...

Time to negotiate, if you purchase regularly from a supplier and you keep to their trading terms,  it is time to negotiate a better deal, ask for a trading discount and offer prompt payment in exchange, you will reduce your direct cost, increase profit and they  will keep their cash flowing.

Step back, are you running your business or is it running you?  Delegate, those tasks that do not need your personal attention, and concentrate in improving processes, update systems, visit your customers and negotiate with suppliers. 

Staff training and satisfaction, invest some time talking to them, they can tell you a lot about your business and your customers. They read the papers too and will know that times are tough, make them part of the solution, not the problem. You have invested money in their training make them accountable.