Credit Management and How It Affects Cash Flow-Wikipedia of Finance-WikiFinancepedia

Credit Management & How It Affects Cash Flow


Cash flow problems are one of the main causes of small business failure, with too many small businesses leaving it too late before they tackle cash flow issues while they still can. Instead of letting it escalate out of control, allowing the debt to keep on building until you can’t afford to meet your outgoings and need a payday loans UK direct lender, good credit management is needed.

Many businesses complain that they have trouble managing their credit because they are too centred on their core business. On the other hand, credit management should be included because it can significantly affect their company’s success as a whole.

Credit Management and How It Affects Cash Flow

Auditing and controlling a company’s clients, suppliers, and debtors is known as credit management. The goal is to increase revenue while lowering bad debts. It all boils down to understanding how much credit you can give your customers and making sure they can pay it back.

Investing time into bringing in good credit management processes as a short-term priority that can lead to long-term results, being worth the journey to get there when you see a positive impact on your cash flow. To help you improve your financial management and credit managment, here are some top considerations:

Conduct Credit Checks

Having a good understanding of your customers’ current financial position before you engage in business with them can determine how you do business with them going forward as well as how much business you will accept from them.

An unappealing credit history does not have to mean no business with a particular customer, but it could impact your approach. Although carrying out these credit checks does add time to the process, it is insignificant in comparison to the time you could spend chasing late payments further down the line.

Offer Flexible Payment Options

Be able to offer terms that suit you and lessen the risk of not being paid on time. Since there is no one size fits all solution when you work with customers, make your payment terms clear and if you have doubts about a customer’s ability to pay, offer business on more stringent terms with less flexibility, often involving a limited amount of credit for a short period of time.

This can be changed as they become a more loyal customer and prove their ability to pay on time, but the initial priority is for them to pay on-time on a regular basis. Discounts for early payment are also worth considering to improve your cashflow and offer an incentive to customers.

Issue Invoices Promptly

By issuing your invoices as soon as possible, you are encouraging your customers to make payment in a timely manner. Once you’ve completed a service or accepted an order, you can issue an invoice or request deposits to assist your cash flow and match any expenditure you might be about to incur.

If you work on the basis of running just one invoice bundle a month, this approach could result in a big delay between when you complete work and when you invoice, leading to delays and struggles maintaining profit margins.

Maintain Open Communication

Having active procedures for keeping in contact with your customers, even before an invoice is overdue, will keep you in the forefront of their minds to prompt on time payments.

Regular contact throughout the credit period can significantly improve payment terms, even giving them opportunity for any invoice queries before the due date. It can also be worth checking that they have actually received your invoice, asking whether they have any queries to start the conversation.


There are a number of ways to assess your current credit management. Best practices for analyzing customer credit cards, billing, collections, and employee allocation are a few of them. In certain situations, handing over your credit administration to a third party could boost your cash flow and make better use of your internal resources.

A sustainable business must be built or maintained with good credit management. It frequently has to do with the collection process. They are not the same, yet they are similar and frequently happen in the same department.

Credit managers must promptly conduct thorough studies of new customer on boarding and credit extension. They must also balance reducing risk with increasing or maintaining cash flow.

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