Managing Business Risks
Would you take on any business deal if you thought you might not get paid?
That’s the risk many small business owners need to assess every day when they extend payment terms to their customers, both new and current. The impact on businesses when someone who they thought was an acceptable credit risk, turns out not to be the case, can be significant on cash flow.
Accounts Receivable, Trade Receivables, Debtors, Trade Debtors, Trade Account, Credit, Payment Terms – whatever you choose to call it, these represent customers who owe money to a business for which products or services have been supplied. Think of it like extending an interest free loan to someone, often without any security.
The terms on which payment is offered should be carefully considered for a number of reasons:
- The payment terms should align to the work, product or service being supplied
- The value of the invoice should be considered in the context of the customers ability (or likelihood) of paying
- Due diligence, including proper paperwork and appropriate checks, should be undertaken to project a professional relationship between business and customer at all times.
Failure to understand the above key points and take relevant action costs small businesses millions of dollars annually. In November 2015, Fairfax media pointed to research that identified Australian small businesses are owed $26 billion at any one time because of unpaid invoices, with the average amount owed to each business being $13,200. A more sobering consideration is that if a business has a profit margin of 10%, it needs to generate $132,000 new revenue to make up for that average debt if it is written off as unpaid.
We understand some businesses are worried they might lose custom if they ask too many questions or make it too difficult to do business with. That’s where Brodie Credit Control Solutions can help.
Before you offer a Trade Account, there are some basic prudent steps you should take. If you would like to know how to:
- Work out what trade terms you should offer,
- Ask the right questions before you offer a Trade Account,
- Assess the quality of a potential new customer, or check on some existing customers,
- Ensure you have just the right documentation in place (not too much, not too little), or
- Reduce the likelihood of a customer not paying
Contact us on 9889 9977 or email firstname.lastname@example.org to discuss how we can help you.