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Use this simple creditor management tip to avoid cash flow problems from sinking your business

by , 22 April 2014
Failure to manage creditors is the main reason so many South African businesses go under. If you want to ensure this doesn't happen to your company, you need to make creditor management your priority. Here's one effective creditor management tip that'll help ensure your creditors pay you on time so you can avoid cash flow problems.

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Avoid the credit trap with this creditor management tip

Assess your debtor: According to Dynamic Business.com, debtor assessment is the most important part of credit management as it tells you whether to extend credit, how much and what to expect from the debtor.

You mustn't let customers, clients or suppliers become a liability.

Run a check on customers to make sure they're legitimate.

The site says credit testimonials and written statements that vouch for the relationship the debtor has with other creditors can be useful if you ask the right questions of the creditors that best match your business profile.

Once you've determined the financial state of the potential customer, set a credit limit.

'Start will small amounts of credit and only extend as much credit as you can afford; remember, you have expenses to pay too,' says Dynamic Business.com.

It's at this point that you should also identify how long you're willing to wait for debtors to pay their invoices and build in some time in case you need to chase. Consider developing penalties for late payments and incentives for early payments.
 

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The bottom line: 'The last thing you want in this already tough economic environment is a cash flow crisis,' warn the experts at FSP Business. So use this tip to manage your company's working capital properly.

And be sure to check out the Practical Accountancy Loose Leaf  for additional tips to help you manage your creditors effectively.

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