"In the wake of one of the worst holiday spending seasons on record, more retailers are squeezing their suppliers by extending payment schedules, Debtwire reports. The tug-of-war over the issue %u2013 and the disappearance of credit insurance %u2013 has sent vendors scurrying through a mousetrap full of retail bankruptcies, no-win negotiations and dwindling choices."

"Interest free loans! Sounds great doesn't it? Well that's what businesses do when they offer credit terms to their customers. Sure it's considered normal to allow a customer thirty days to get their bookkeeping in order to pay the bills. But very large companies especially, take advantage of this largesse and take 60 - 90 days to pay an invoice. That becomes 3 months of interest free money. Your money. You are essentially helping to grow their company using your resources."

Art of Factoring Blog Archive Free Money!

Well, this is all very true but is factoring the answer? Only the business owner can make the final decision, but before they do, explore all the options available.

"The commercial world is tightening its belt. Major Banks are reporting a growing number of British firms have fallen behind with their repayments. Business debt collection is more important than ever to prevent cash flow issues. This has led to larger companies getting more aggressive and:

1) forcing extended credit terms on suppliers

2) demanding discounts on already agreed prices

3) demanding settlement discounts for just paying on time

4) Imposing retrospective rebates for goods already delivered.

5) Using late payment as an easy way of funding their own cash flows.

These are extremely worrying developments for the whole business community."

"The companies are hugely dependent on their cash flows. But if they push their slow payers too hard, they risk losing customers. Hiring collection attorneys is also expensive, and if late payers are pushed into bankruptcy, their small-business creditors may find themselves empty-handed, waiting at the end of a long queue."

This Wall Street Journal item is very timely and will apply equally to Australian small business this year. If you are a small business owner, then think these issues through very carefully and act now

To Help Collect the Bills, Firms Try the Soft Touch - WSJ.com

Could not help but point out this item as a sign of the times in the UK. Hope this does not happen here in Australia.

The article keeps referring to credit controllers but I think the author really means debt collectors.

Birmingham arcade traders protest against aggressive baliff tactics - Birmingham Mail

"04. Call / email accounts 45 days or more overdue."

Credit control, is not the same as debt collecting because credit control is a customer relationship building tool. The Oxford Dictionary defines credit as:

"credit Good reputation; power derived from this.
Trust in person's ability or intention to pay at some future time;
reputation of solvency and probity in business."

The above sums it up - the trust, or hope, you will get paid and there are few people who do not owe someone something. In business, credit was once only given as a convenience to those who did not really need it because it was more effective for regular customers to pay at month end rather than on collection of goods. Whilst this was in the 'my word is my bond' age it did not stop bad debts and Dun & Bradstreet did credit checks in New York over 150 years ago.

Granting credit needs a wide knowledge of business and a good understanding of human nature. Effective credit control ensures payments are made on - or soon after - due date by turning an overdue account into a priority payment in the debtor's eyes. This has turned credit control into a customer relationship building skill, which makes it assertive but non-aggressive.

One reason for late payment is a reluctance to ask for money. These days, the "only pay when asked," tactic is common and some advisors tell their clients to do just that. But even straight-up-and down businesses sometimes delay payment because they cannot afford to pay just yet.

 

"But unlike small business owners, corporate employees never have to worry about making payroll or keeping the lights turned on."

 

"Strategies for Writing Accounts Receivable Procedures Part Two of Cash to Cash Cycle Series"

 

"Credit control: Focus on debt collection to convert your work in progress into income. Bill early and bill often. Set up automatic late payment reminders and enforce credit terms vigorously. Credit check customers on large projects. Are they viable trading partners?"

"Until fairly recently, accounts receivable financing (or invoice discounting or invoice financing) has been seen as a lender of last resort. That is, you would only go to these lenders if you had exhausted all of your options due to the high costs involved."

 

"you try something, if it doesn't work, you try something else."

 

The advice to companies is sound. However, both factoring  and invoice discounting can be expensive. A better proposition is to tighten your credit control. If you can't afford to employ someone and don't feel that chasing your clients is your 'thing' then consider outsourcing the role. Fees can be surprisingly low!

How Businesses Can Have Cash Flow in the New Year

A good guide the small  business.Even though it is a US article it applies to any Australian company as well

Keeping Tabs on Cash Flow - US News and World Report

This is the Canadian view of the downturn in business. Of course, keeping on top of  accounts receivable and better management of credit control is essential

Coaches help firms face downturn

The view from the UK. One commenter got it right by putting the emphasis on poor credit control.

BBC NEWS | The Reporters | Robert Peston

Accounts Receivable Solutions (SE Qld) are Outsource Credit Control and Debtor Specialists providing tailored solutions to small businesses. We reduce bad debt risks, improve cashflows and lower your costs using non-aggressive techniques. This protects customer relationships and gets payments in on time. Click this link for more information. 

Software for credit control management

Debtor Management

What can happen if SMEs do absolutely nothing about their debtors. Written from a debt collectors point of view

Bermans: UK small businesses lose nearly £1bn every year - by mistake