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Watch these three creditor risk areas like a hawk or your company could suffer financial ruin

by , 23 October 2014
If giving your clients credit is part of the way you run your business, it's easy to run into danger.

After all, it only takes one person to default on their credit payments for your company to make a loss.

But the fact of the matter is, this isn't the only time credit puts your company in danger. You might have to use credit to run your own business and this has it's own dangers.

That's why, today we're revealing the three biggest creditor risk areas you must look out for when you use credit in your business...

 

Beware these three creditor risk areas

 
1. Creditor balances – unauthorised suppliers and recording inaccuracies
Unauthorised suppliers are creditors management hasn't approved to supply goods or services to your business. For example, you might not approve them because of high sales prices, poor products or unfavourable payment terms. 
 
Inaccurate recordings are errors that occur in the accounting when processing the goods purchased in the system.
 
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2. Creditor balances – settling balances
You need sufficient cash available to pay creditors when the balances are due. Your supplier could charge you penalties and interest on late payments. 
 
An even bigger problem is over spending. This is when you purchase more on credit than you're able to repay in the future, which results in excessive debt.
 
3. Creditor payments – fraud/misappropriation
Paying of creditors can have many risks if you don't have sufficient controls in place. For example, you might not have the correct banking details or the creditors you're paying may not even exist.
 
Before you ask for goods and services on credit, first ensure you can avoid these three risk areas. If you can't, don't opt for this payment approach.
 
For more on credit dangers and controls to avoid them, check out the Practical Accountancy Loose Leaf Service.
 


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