Keeping control over credit is crucial for the success of your small business. The last thing you want is to become a debtor saddled with payments that are due. Bad debt eats up your working capital, and it increases the number of days outstanding – the amount of time your business must wait before it receives payment from a customer. Having an effective credit control policy is essential for your business’s long-term viability. A credit check online, is usually a good starting point before offering payment terms and business credit.
To establish credit control for your small business, you need to establish a credit control policy. You can set a company-wide policy or use a case-by-case approach, depending on your business’ needs. Your customers’ payment terms are added as terms in your accounting software which in turn automatically produce reminder letters and statements. As a small business owner, discipline is crucial as well as following the policy strictly. It is essential to ensure that you collect all cash when it is due.
The next step is to determine the type of business structure that best suits your needs. Corporations and PLC both offer protection for the owners’ personal assets. Sole proprietorships and general partnerships cannot separate their business and personal credit history. For this reason, it is imperative to create a separate entity for your business. When you create a PLC, you can determine the type of liability and separation between you and the company.
Having effective credit control procedures is essential for any business, but it is especially important for a small business. Even a small number of late payments or delinquent customers may significantly harm your cash flow and harm the revenue stream. Having a payment terms policy combined with close control over customer timely payments, allow you to manage your company, its cashflow, instead of becoming a hostage to late payments and negligent customers.
A credit line or a term loan, may offer you a solution should your revenue is taking an unexpected hit or if you are suffering for outstanding payments and debts. Having an external funding, will allow you to gain back control over the situation and focus on managing the debt and outstanding customer payments.