Why A Credit Manager May be The Solution to Your Cash Flow Worries

The 2015 Hiscox’s annual DNA of an Entrepreneur survey, published earlier this week, reveals that late payments and a shortage of quality, skilled staff are the biggest challenges facing UK SMEs.

This might come as a surprise considering the growing importance of exports to the British economy – as revealed by the latest Central Statistics Office figures – and the impact that the apparent slowdown in China is having on the stock markets and exchange rates.

However, when you stand back and look at the bigger picture, the effect of these very real issues becomes more apparent.

Late payment, as we all know can cripple small businesses, while the rising cost of hiring suitable staff is bound to have an impact on every company’s bottom line, especially when you consider the fact that 22 percent of businesses are hiring in order to meet customer demand.

The Hiscox survey also revealed growing confidence amongst SMEs, with more than half planning to launch new products in the coming 12 months. New products tend to mean access to new markets, and thus a likely increase in customers and invoices issued.

One of the major expansion blocks for SME’s is their ever-growing accounts receivable base. So many business owners think that once they have posted the invoice to their receivables ledger, it’s like cash in the bank.

Needless to say nothing could be further from the truth. Only when an invoice is paid can it be considered cash in the bank and usable.

Business owners who constantly ignore the aging of their receivables are creating a problem for themselves that could have dire consequences down the road. 

It is essential that receivables be managed, and managed efficiently to ensure the health of the company.

Past due accounts are a problem that can increase costs especially if the business is using receivables as a form of leverage. Even if not, the impact on cash flow is in itself a costly issue.

Many of those companies interviewed in Hiscox could benefit by employing a dedicated credit manager.

While hiring a well-qualified and experienced credit manager may on the surface be a costly exercise, the benefits that he or she can bring to a company often surpass their salary.

Accounts receivable definitely do not manage themselves.

Here are three things you should look for in your credit manager:

1.       Relationship Skills

Credit management is very much about relationships. Your credit manager will tend to communicate with customers on a daily basis, be it over the phone, email or in person. Having someone who can strike a balance between managing your company’s relationship with the client and collecting the payments that are due is invaluable. Make sure the person you hire can strike up long lasting relationships that benefit your business.

2.       Creativity

Even the most diligent business owners may find themselves chasing a client for payment on an invoice that is past due. A successful credit manager will work with your debtors to develop creative solutions that help them resolve their debts. By working with customers, rather than hounding them with letters and phone calls, your credit manager can open up communications to harbour smoother future payment processes.

3.       Financial Literacy

This should go without saying. A credit manager must have a solid grounding in the basics of finance. Such skills ensure your credit manager is making informed decisions, understands just what the situation is with each of your debtors, and can confidently handle the complexities of managing dozens – and often hundreds – of accounts.