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Don’t Become Over-Exposed

Not losing money is as important as making it. Mike Collins advises on reducing your risks.

As regular readers will know, we at AccountAssyst don’t mind giving away our trade secrets. In fact, we encourage exchange of late payment information (the Register of Outstanding Invoices) between our clients and ourselves to maximise the best chance of recovery for all.

Yes, admittedly we may end up doing ourselves out of some business by educating our clients a little too well but hey, we’re in the service industry. We are here to serve.

Rule 3 of effective credit control – Always try to reduce your exposure and risk

People think that the key to good credit control is being paid on time. It isn’t. The key to good credit control is reducing your exposure and risk before you do any work.

In many industries, it is now accepted practice that there is a need for partial payment up front to fund the sale. Look at what you are supplying – is there a way of operating that allows you to break down the transaction into smaller, manageable chunks that are less likely to go unpaid?

For example, as a distributor you’ve been asked to provide 4,000 branded umbrellas for a customer. Could you break the transaction down as such?

  1. Upon agreement of the quote and approval of artwork – 30% of the order value.
  2. On date of delivery – 30% of the order value.
  3. The remaining 40% of the invoice is then invoiced on 30-day credit terms.

The aim is to secure at the very least, the amount that the order has cost you to fulfil upon delivery. Step 2 has the added advantage of identifying at a very early stage a customer cash flow issue, so that in response you can act fast and take immediate recovery action.

This all means that should you end up securing the two upfront payments and no more, you’ve at least covered the majority cost. Even though you’re not making any money until the balance is paid, you’ve not lost any either. If it all goes awry the risk is profit and time. Any worthy credit manager will tell you that not losing money is just as important as making it.

Having been industry leaders for the last 10 years, our experience tells us that taking a little time to step back, analyse an order and see where you can secure deposit payments before rushing headlong in to complete a sale, is a much smaller expense than the additional time it takes to pursue a bad debt when a customer goes rogue.

So don’t delay, start developing a strategy for reducing your exposure on all transactions.

Reducing risk

The solution to risk reduction is at your disposal. To activate your complimentary BPMA Credit Management Package (including account opening, terms and conditions, credit reports and credit control chasing) simply contact Mike on (01274) 223190. In just a few short minutes we can identify your needs and implement your own bespoke risk reduction strategies.

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