Too Many Debtors

It is becoming the norm for almost all businesses to offer credit to their customers (depending on your type of business) and so it is not surprising that this is one of the largest influences on poor cash flow. This is where a good management system needs to be integrated using budgeting and cash flow forecasts. More importantly, a good credit policy and effective credit control needs to be adopted.

When customers fail to pay you back at the agreed time, it can have a major impact on your cash flow particularly if the money owed is a significant amount. This can leave you short of money at that point in time (and possibly for longer if the debt becomes an aged debt) and leaves you with the trouble of raising more finance to compensate for the delay in payment.

Failing to keep control of your debtors is one of the main causes of having bad debts and so it is important that you follow up immediately on any late payments. At the same time, it is important that you keep good relations with your customers, particularly the important ones.

Larger businesses have been criticised as they often 'abuse' smaller businesses offering credit by purposely delaying payments knowing that they will always be regarded as a 'major' customer to the business. A change in legislation (7th Aug 2002) has now allowed businesses to claim late payment interest from each other, which can also be charged to invoices that date back from 1st November 1998.

(This article is written by bizhelp)