It’s essential to secure your business against late payments or potential defaults from customers. In fact! Setting up a procedure can spare you a lot of pain. If you want to maximize your company’s profits and reduce the risk of extended payment terms, then you should have credit management in place. Now, you must wonder what this credit management is and why everyone seems to drool over its benefits. Well, you are at the right place because here we will discuss the inside-out of credit management.
What is Credit Management?
Credit management refers to granting and managing customers’ credit accounts inside a company. If your business revolves around credit grants, you need to have a system to monitor and reconcile them regularly. Credit management is all about setting up payment terms, rules of payment recovery, and ensuring adherence to the company’s credit policy. In simple terms, It’s a set of regulations that ensures you are paid regularly and fully by all your customers.
Benefits of Credit Management
Maintains an Optimal Cash Flow
Without a regular cash flow, a business can’t run fully. The reason is simple – revenue is the key to carrying out various business ventures. Not keeping an eye on the money you have to receive from your customers can get you in big trouble and even lock your capital. At the same time, you need to be clear with your payables, and otherwise, you’ll end up paying extra with all the late fees and interest.
Safeguards Your Financial Stability
If you are laidback about the invoices and think one or two unpaid invoice doesn’t make any difference to your business. Then you can’t be more wrong about this as every year, at least one company disappears in thin air due to their unpaid cluster of invoices. No matter how calculative you are in making forecasts, the money unpaid by your customers can get you in heavy repercussions. So, make sure you’re keeping up with the credits.
Helps in Keeping Cordial Relations
Credit management helps filter out the best customers or clients you want to further financially engage with. It helps you easily weed out those customers who always have a problem with timely payments. You can pick and select customers who are professional in their credit approach.
If you don’t manage your business credit properly, you lose penalties and interest that your sellers incur. On the other hand, if you don’t get the balance owed by the customer, you will have to spend extra time and money on the payment settlement process. It all adds up to your business. If you maintain good business credit, you can avoid them.
Therefore, managing your business credit is very important to your business. The earlier you start the business credit management process, the better it is for your business. Running a good business credit is an art, and companies that understand its policies can ensure their cash flow is efficient while working for their business.
About the Author
CreditQ is a women’s startup company based in DPIIT. Available on web and app (Android and iOS).