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manage debt in the Covid environment

5 Tips for Small Business Owners to manage debt in the Covid environment

With the easing of restrictions in Victoria and businesses reopening, many will be struggling with the financial impacts of the Covid-19 environment. The recent Bureau of Statistics Business Impacts of COVID-19 survey revealed more than a third of businesses are expecting to struggle to meet financial commitments over the coming months. Industries most likely to be affected are businesses providing accommodation and food services, transport, postal and warehousing and arts and recreation services.

For these businesses, offering credit to customers is often an essential part of doing business and there will be pressure to increase credit limits in the push to increase revenue and sales. But there are ways to extend credit to customers and still protect your cash flow:
1. Ensure you have an effective Credit Application process. Don’t be tempted to cut corners in the rush to sign up new customers; a sale is not a true sale until the money comes in the door! Capture information about their correct trading entity, contact details, trade references to help you assess risk and ensure you have appropriate terms of payment included. Appropriate clauses that can protect you down the line can include security for the debt, recovery of collection costs, personal guarantees and interest.

2. Get to know your customer. Building a relationship with a new customer goes a long way to ensuring that you get paid. People often prioritise paying people they like, so pick up the phone, write an email, have a friendly and informative on-boarding process and your cash flow will thank you for it down the line.

3. Have a clear invoicing process and educate your customer with expectations around payment terms early on. So many bills are paid late because there are mistakes on the invoice so take a little time to put in some basic checking processes. Make it easy for the customer to pay with clear payment options and always include contact details so they can easily reach you with any questions.

4. Review your collection strategy and communications. It doesn’t have to be complicated but have a set process in place that includes friendly reminders at appropriate times in line with your payment terms. Early intervention is key in an uncertain economic climate to identify and resolve any potential issues that may be affecting your customers ability to pay at an early stage. Review all of your letters/emails and ensure they are appropriately worded for the current environment.

5. Look out for early warning signs that your customer may be heading towards insolvency and shutting up shop. If your customer is avoiding you and you aren’t getting any response you may need to look at referring to an external collector. Consider signing up with a credit reporting agency that can help you assess your credit risk for a monthly fee that won’t break the bank. Your can have your customers on a watch list and will be alerted if there are any red flags that may affect your chances of getting paid in the future.

Above all else communication is key. Don’t forget the human element, we are all human and we are all customers. Building strong relationships with your customers goes a long way towards eliminating risk. If they are struggling and there is open communication about this then you can generally work with them towards a suitable outcome that may involve extended payment times or payment arrangements. By following some simple processes you can look to effectively balance your credit risk with growing your business in the current environment.

Connect with us here to arrange a free 20-minute consultation to discuss how to improve your cashflow. Alternatively read more on our credit management services here.

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