Cash Flow Buzz

Trade Credit: Avoid destroying your cash flow (video)

by Daniel Dunsford on 02/08/09 at 4:27 pm

David Pulver from Reliance Trade Credit and Surety has an enormous wealth of experience from his years in the trade credit insurance market.

This week we tap into this experience and look at ways to implement it into your business.

In this video David makes the following points:

1. All businesses must have systems and procedures for introducing new customers and systems for operating with those particular customers.
2. It is advisable to have some form of insurance against losing one of your major accounts unexpectedly.
3. You should look at your top ten accounts and try to give them a commercial rating. For most businesses they find that they know a lot about their top 2 or 3 accounts, but after these most times you don’t really know anything about your clients, this is the risk area. This is where you would have large or middle sized exposure to companies you don’t know much about. That is where trade credit can be very effective.
4. When you move into tougher economic conditions, and you don’t monitor your customer’s credit closely, you normally get a very large bad debt.  Very often that bad debt will have a very big impact on your company.
5. Anybody extending commercial credit should go through the basic perfunctory checks (meaning?), and they are checking that the company does exist and is incorporated, you should check that there are no adverse actions against that company and there are no adverse actions against the directors.
6. Once you have the basic fundamentals correct in terms of extending credit, then in this economic climate tread warily.  Hold back on the credit amounts for the first 3 or 6 months of dealing with a new customer. After this amount of time, if you see a pattern evolving of their ability to pay on time, then start advancing larger amounts of credit.

This video provides some great advice to business owners, as countless businesses have fallen into the trap of over-extending credit to customers who subsequently go bad.

Got any stories from your business or advice? Comment below…

Related posts:

1. Credit reporting and checking the credit of your new customers
2. Is your customer having credit problems?
3. Protecting you cash flow with debtor insurance
4. Learn to Manage the 7 Cash Flow Drivers of Your Business
5. Cash flow and an interesting conversation with a lawyer Monday, October 13, 2008