Traditionally, starting a new business was all about having faith in your product/service offering and sticking by the principles till you make it. In today’s cut-throat, competitive and entrepreneurial landscape, the only way businesses can stay ahead of competition is by adapting and moulding themselves from the word go.
Customer experience has emerged as one of the most important pillars that can define the success or failure of any business. In a bid to offer flexibility, most businesses end up introducing customer credit as a payment method. While credit as a payment method can boost sales, it can also put your cash flow position at great risk.
Let us try to understand why customer credit is important, what credit policies are, and how an accounts receivable outsourcing firm can help vulnerable organisations.
Customer credit is a payment method that allows customers to purchase a product or service before paying for it in full. This method is quite common in the SME space and works in a similar manner as credit cards – however, when a business offers customer credit, it is them who take on the credit risk.
While flexible payment methods attract new customers and boost sales, customer credit can also make a business’ accounts receivable extremely vulnerable. One of the most common risks that a business faces when it offers goods or services on credit is that customers start taking undue advantage and end up with late or missed payments. Not only does this add complexities to the accounts receivable function, but also hurts the cash flow.
In simple terms, a credit policy is a set of guidelines that sets credit and payment terms for customers and establishes a course of action for late payments. A well-drafted credit policy safeguards the company’s accounts receivable by clearly defining the following:
More often than not, growing businesses often end up focusing too hard on selling & expansion. In addition, no company ever wants to be on bad terms with its customers. As a result, companies usually find themselves accumulated under late payments and bad debts. In such scenarios, a clear credit policy can protect the interest of small businesses as it highlights payment expectations & guidelines to minimise bad debts.
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As you must have understood by now, a credit policy is a very important framework that will literally determine how much working capital your company has. Even if your onshore finance team is able to draft a solid credit policy, implementing it and ensuring that it is followed diligently for all customers can be quite challenging. Many finance leaders end up taking to outsourced accounts receivable services as it allows them to introduce credit control experts to the business and free up onshore staff for strategic tasks.
Here are some of the ways in which accounts receivable outsourcing partner can help your business meet your cash flow goals by leveraging an effective credit policy:
RELATED CASE STUDY: QX worked with a leading recruiter in the UK to transform their accounts receivable and credit control functions. Read the case study for the entire story!
QX Global Group is a leading finance and accounting service provider working with businesses across industries in the UK and US markets. Our clients in the student housing, recruitment and manufacturing industries, amongst others, have leveraged our unique partnership approach to enable finance transformation.
Get in touch to speak with our finance transformation experts and get reliable support to transform your accounts receivable process.
Originally published Jan 26, 2022 07:01:57, updated Jan 26 2022