Why is a Credit Control Service important?

As a time served banker, I recall three things that have been said to me, and which I have repeated to clients, over many years of lending;

  • “Cash is the lifeblood of any business”
  • “Cash is King”
  • “Businesses go bust because they run out of cash – simple as”.

All of which are true, and which continue to be proven so.

Profitable businesses can get into difficulty because they run out of cash – for example:

CRS were called to assist a thriving engineering business that had got into difficult because;

  • The business was “overtrading” (taking on too much turnover than it could cope with, financially) and because its customers were taking up to 100 day to pay.

Also, the business had been chasing new contracts and had neglected to chase over £300k in final account settlements and retentions

Overtrading aside, the company’s working capital pressures could have been eased by spending more time on tying up loose ends and getting cash. After a couple of days working with CRS, cash began to come into the business to ease pressure from the lender who was very uncomfortable.

This company had created such an acute cash pressure that its lender was forced to call in a restructuring specialist, but also CRS, whose review of the company’s debtor book, hit the heart of the problem. The business may well still be profitable, but its cash management and awareness has caused its lender great concern.

More positively – good credit control can save you money and also reduce risk;

A business that takes 30 days credit, but is forced to give 75 days’ credit, needs working capital. If the business does not have cash reserves it will be forced to seek bank finance, or may be asked to consider factoring its sales.

  • Bank funding costs you money, overdrafts aren’t cheap and (if you’re a limited company), you will, probably, be asked to give a personal guarantee and/or pledge supporting security. This puts you, and your personal assets at risk.  

 

  • You may be introduced to a factoring company who ease liquidity and make you more cash positive by releasing a proportion of your invoice value, on proof of delivery, and the balance when the buyer pays. This sounds good but there is usually a committed period of 12 months and the necessity to deal with all of your turnover this way, often taking 2% – 3% off your gross margins.

Summary

To summarise why our credit control service is important:

  • Better Credit Control eases cashflow and makes a business more liquid and more in control. This is something that our credit control service will help achieve.
  • Make sure you are adequately resourced and have good systems.
  • Remember Profits and Cash are not the same thing!

CRS can help business by providing;

  • a Flexible Credit Control Service, looking after all, or just part of your ledger. CRS can take selected difficult payers or, as has proven very effective, chase the debts that have gone beyond acceptable parameters.
  • Debt Recovery of disputed or difficult debt; those customers who have fallen out of the pack, who will not retained and who are taking liberties.

Request more information on Outsourced Credit Control or a FREE, no obligation APPRAISAL OF YOUR DEBTOR BOOK.

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