Engee Accountancy and Credit Management

Do you know that giving your customers credit costs you money?

Every time that you advance goods to a customer on a credit basis you are costing your business money.

Profit is the difference between the purchase price and the resale price. This resale price can be multiplied by the number of times your investment will give you that profit.

Add on the cost of the interest you are paying to the bank for your purchase or production and you can see that payment delays means losses.

Does your bank give your company unlimited credit and charge you no interest?

If the answer to the question above is YES then please tell me which bank it is! No of course they don't, so why should you do so for your customers?

We all know that business runs on extending credit facilities to our customers but that does not mean that we have to fund every Tom, Dick or Joseph who comes knocking on our door, wishing to purchase our goods or services.

Extending credit terms to another company should ensure that they can sell the product before having to pay you and therefore both companies make a profit. However from a selling point of view it would be much better for our sales to be paid at source, but that might restrict our customer base.

There is nothing wrong with advancing sales on credit to our customers, providing that they are worthy of our trust.

Are you concerned about the cost of giving credit?

If not you should be. With increased time delays, higher interest rates and the government squeeze on credit, your costs are going to soar.

Do you know how much you spend on overdue accounts?

Again, if not you should do. This is an area which must be kept under constant review and not to do so smacks of incompetent management and a business out of control, possibly the next company to go into liquidation.

Do you resent acting as your debtors' unpaid banker?

Of course you should. Extending credit to trustworthy customers is fine because you can build in a factor for the cost of the agreed credit but the unscrupulous will always try only to pay when cornered, and that isn’t funny.

Do you budget for cash flow shortages?

This should be a natural function of the finance department. If you do not, how do you know that when that next large bill comes in there will be the funds to meet it?

How do you buy those extra materials for a larger than normal job? Where are the funds for salaries going to come from? Will you be able to get an extra bank loan and if so will it make the product cost rise above the level of making a profit?

Increasingly debtors are taking longer to pay their bills and this costs you money. I can offer you the opportunity to explore the fundamental aspects of cash flow control and Credit Management.