Economic headwinds and your cash flow
10 February 2020
How to prepare today
As the saying goes, an ounce of prevention is worth a pound of cure, and so it is with your accounts receivable. Having been in the credit and collections industry for the last four significant recessions, I thought I would share my insights with the Chamber Members.
My top 7 recommendations are:
1. Credit Application Update and Review.
Now is the time to review your current credit application to ensure it contains all the important terms and conditions to protect your financial interests fully. Credit applications are not universal and should be examined based upon your specific business. Credit applications for companies providing goods rather than services can be quite different.
2. Credit Checks
Credit applications are like resumes; nobody gives a bad reference, so one must dig below the surface for the real information. Methods to obtain information include commercial credit reports which will indicate how your prospective customer is paying current suppliers. If necessary, you can get a copy of the business principals' personal credit history (subject to certain conditions). Generally, business owners treat their business credit like their personal credit. This process can be done in house or outsourced.
3. Bank Checks
Your credit application should contain language that enables your firm to inquire at the prospective customers' bank as to their access to capital. Banking information includes data such as the amount on deposit, borrowing, and lines of credit balances. This information will tell you if your customer has ready access to sufficient capital or indicate the company is living “paycheque to paycheque.” Generally, bank checks are conducted through your financial institution or outsourced to a credit management firm.
4. Know Thy Customer
What industry is your client in? Who are their customers? What economic trends could negatively impact your customer or his client's? Having a deep understanding of this information will give you a realistic picture of what could occur allowing you to take countermeasures to reduce your credit risk.
5. Credit Review of Major Customers
The business section of any publication is littered with what were once household names that were taken down by the unforeseen receivership of a significant customer. We recommend that you immediately review your exposure to major customers. Obtain a new credit report and talk with other suppliers to get an accurate picture.
6. Reducing Expenses
If you took profit out of the picture, what would your company look like? What expenses can you do without? Can you automate repetitive tasks? These are all questions savvy business owners should be asking themselves in all departments, including accounts receivable. There are many companies, with whom you can partner, to gain the systems and processes Fortune 100 companies enjoy, without the significant capital outlay. Outsourcing and automation of the credit functions can save your company money.
7. Gain Leverage of Experts Without Capital Costs
Technology is changing the way business is conducted, regardless of industry. To protect your company's cash flow and credit risk, it may make sense to either automate or outsource many of your current in-house credit functions. Just like ADP has done for payroll and Quickbooks Online has done for accounting, so too are firms that can manage thousands of customer records according to your pre-determined credit policies. Outsourced or automated systems can be branded in your company name so your customers are unaware that you are using professionals.
Blog post submitted by Priority Credit Management Corp (PMP), written by Brad Lohner, President & CEO.
About Brad Lohner: For over 30 years, Brad Lohner has worked in the domestic and international credit and collection industry. In 2005, Brad created PCM and remains headquartered in Edmonton with a branch office in Ann Arbor, Michigan. As the acting VP of the International Association of Commercial Collectors (IACC), Brad has extensive experience and knowledge industry and is a ‘go-to’ resource for his colleagues. If you have any questions about credit, collections & lien filing, please reach out to him directly at Brad.email@example.com or 1.866.266.0117 extension 350.