Take advantage of the turnaround

Small and medium-sized businesses are looking towards the new financial year as a chance for growth after 18 months of declining profitability.

Most have been in contraction mode, focusing on cutting costs, reducing staff, reducing debt and running a very tight ship. However, recent research carried out with our 50,000-plus national client base found 46% of SMEs were looking to grow in the second half of this year.

The new financial year has provided the perfect opportunity to refresh your back-office functions and secure your cashflow. Early indications highlight a cautious switch to growth mode and if you have found it difficult to make money, you are certainly not alone.

Your business customers have also been in retraction mode, resulting in a real squeeze on profit margins and on bottom-line profit.

There are some simple steps any small business owner can take to strengthen their financial standing and expand their business.

To benefit from the turnaround, grow your client base and increase your cashflow, one of the best ways to do so is by granting credit. Credit provides your clients with more flexible payment options and is an effective way of attracting new customers.

To benefit from the turnaround, grow your client base and increase your cashflow, one of the best ways to do so is by granting credit. Credit provides your clients with more flexible payment options and is an effective way of attracting new customers.

Of course, for a business granting credit means taking on debt; however, this should not be a daunting prospect. If you don’t, they will go elsewhere. Loosening your credit controls does not necessarily mean that you will face increased losses from bad debts, though you will have more of your business capital tied up in your debtors’ ledger.

When providing credit to customers it is vital you carry out some simple but crucial steps.

1. Firstly, have them complete a new customer application form. The form will provide you with valuable information to assist you on deciding how much credit to grant and will help in the event of a default. Include their name, date of birth, address and if they are a homeowner. This will give you a legal avenue should they default on their payments.

Another key element to incorporate in this form is to outline your business trading terms so when your client signs the agreement they also acknowledge they are bound by these terms.

2. Having well-drawn trading terms in place gives you leverage and reduces the risk of a buyer forgoing payment as the chances of defending any claim will be significantly decreased. Your trading terms should include a clause stating that in the event of a client defaulting on payments, they are liable for collection costs.

For companies, insist on guarantees from the directors – doing this will significantly reduce your risk of bad debts due to potential assets in the company.

3. Along with your payment policy, ensure you implement a collections policy and stick to it. Outline clearly the process you will follow when recovering debts and make sure each is a positive step forward, meaning each action is progressively more forceful. For example, when an account is 30 days overdue, make a phone call to the debtor and at 60 days refer the account to a collection agency.

Slow payers will take advantage of any weakness so it is important to enforce your collection policy consistently.

Referring your accounts to a collection agency that has a ‘no recovery, no charge’ policy means you can recover your debts at no added cost.

These are simple steps which will cost you nothing to implement but will allow you to grow your business with security and confidence.

Roger Mendelson, CEO, Prushka Fast Debt Recovery

www.prushka.com.au