8 out of 10 small businesses fail – an alarming statistic considering that 96% of businesses in Australia are considered “small businesses”. More alarming are the reasons why they fail. ASIC’s (Australian Securities and Investments Commissions) annual report on corporate insolvency shows that in 2016-2017, 47% failed due to inadequate cash flow and 46% because of poor strategic management.
Businesses can be profitable on paper, but lack the cash to operate the business, so good credit management is vital.
Have you ever calculated the financial burden outstanding payments place on your cash flow?
On average debts remain outstanding between 45-60 days – nearly double the 30 day credit term that’s common in business.
Let’s take a business that generates $12 million in revenue annually. If it can reduce its debtor days by 10, say from 90 days – it will achieve an annualised cash benefit of about $330,000. That’s a significant injection of cash just by collecting your outstanding payments sooner, and could be the difference between calling on your overdraft facility or not.
A common misapprehension in business is that the problem with getting paid arises when creditors delay or refuse payment. Whilst that is generally true, the problem can often stem from day one of the business relationship.
Good credit management doesn’t start with collecting the outstanding payment - that should be the last resort. Good credit management starts before the customer walks through your door.
We would be pleased to review your credit management process and policies because it is not an area in which business can afford to be complacent.
Sound credit management policies and procedures will help to reduce bad debt but it is unlikely to eliminate it completely. In our experience, keeping the debt collection process in-house is time consuming and costly to business and becoming increasingly ineffective, warranting a more formal legal demand to trigger payment.
At Cowell Clarke we understand that when running a small business, engaging professionals can sometimes be a daunting and costly experience. However, Cowell Clarke has a debt recovery service which aims at providing an effective debt recovery service with affordable fixed fees and no commissions charged.
Our service is led by a team of experienced and professional solicitors who provide advice and support aimed at improving your credit management systems and debt collection. The services provided by our expert legal team, gives us a competitive edge over mercantile agents. In our experience a letter from a lawyer rather than a debt collector results in a prompt response or payment from a debtor.
Contact us today to get involved in an affordable solution for debt recovery, or click on the link below to complete our instruction sheet to provide us with details of debts that you want to recover now and you could be on the way to recovering bad debts before 30 June. Find out more by clicking on our Debt Recovery page.