We often think of new business in terms of getting new customers to choose us as their goods or services provider. But when it comes to protecting your cashflow, it’s also important to choose the right customers.
To do so, ensuring local visibility and knowledge in the long-term is key, such as calling on local partners to gain insight and build relationships.
It’s also important to evaluate potential clients using alternative intelligence. You should dig beyond their financial ratings and look into whether their strategy and culture are in line with your own. You can also consider whether they have risk coverage, like credit insurance. This usually indicates strong corporate governance, the ability to take smart risks and an avenue to manage potential exposure.
Carrying bad debt can quickly become burdensome. Not only does it monopolise resources, but it can also hinder forecasting and the bottom line. By adopting a forward-looking strategy for minimising debt, you can also open potential business opportunities. How can you limit bad debt?
It all boils down to ensuring you have to—and provide your customers with—the right information. First, set yourself up for success in two ways: implement standard terms and conditions. Every client should be aware of this agreement, including any penalties for late payment, from the onset of the relationship. Next, proactively decide when it makes financial sense to chase down bad debt.
The burden of proof is on you and there are considerable costs associated, so knowing your ‘tipping point’ will save resources in the long-term.
Once you’ve put the proper measures in place, build a relationship with your principal contact within your customer’s organization. Instead of waiting for a bill to become overdue, initiate a transparent dialogue around objectives and issues management. Ensure you understand your market by equipping yourself with data on business contexts, collection practices and the legal system. And finally, assess your customers’ creditworthiness and define credit limits and payment structure accordingly.
With interest rates and complex trading conditions on the rise, debt is becoming more difficult for companies to manage. On a global level, we expect insolvency rates to continue to rise by 4% in 2019. Corporate collapses can prove catastrophic for unprepared SMEs in particular.
Here are four steps to protect your business against customer insolvency: