Cash flow keeps the doors open and makes a business a viable entity. Without it, businesses can close overnight. We all hear stories of great businesses not being able to sustain their venture due to lack of cash flow. The last number of years have proven to be the most difficult for businesses to keep everything afloat and significant capital injection is required by owners and entrepreneurs alike.

Getting paid on time has never been more important than in today’s climate and having the requisite credit management systems in place to achieve this is critical for the business owner. This credit management system must work.

First of all it is important to have your business terms and conditions reflect how your business operates. This means a review should be had of all terms and conditions regularly. Retention of title clauses, interest on late payments and legal costs should all be covered in your terms and conditions. Make sure that all your existing and new customers have a copy of the Terms and Conditions. Tip: issue your customers with a copy of the Terms and Conditions prior to opening a credit account with them.

Secondly you should try where possible to have your customers sign the Terms and Conditions. A prudent employer will impress the importance on all employees that certain documentations must be signed prior to opening a credit account. Executed Terms and conditions, signed credit terms and other acknowledgements, if any, by the customer will be of great help if you find yourself in court seeking recovery of a bad debt.

Thirdly, keep all contact with your customers. If a customer is starting to operate outside your Terms and Conditions you need to ensure you have a paper trail of all communication with them such as emails, letters etc. This helps show a court that you have made every effort to resolve the matter directly with the customer rather than a hasty rash decision of going to court straight away. It will also show you the time wasted in chasing a bad debt so that you can tighten your credit management systems going forward!

Stick to the procedure you have adopted at all times. It will pay off in the long run and avoid unnecessary time spent in chasing bad debts. You can spend time working on things that will generate money for your business instead!

Finally where you find that there are large amounts of work in progress (WIP) not being recovered or your have significant bad debts in your end of year accounts, you would be best advised to consult your accountant and solicitor for advice on how to proceed. Excessive WIP suggests that your business methods may need to be amended to reflect your business reality. While too many bad debts mean that you need to look at your credit procedures.