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By Frances McGuckin

A sale ain’t a sale and a profit ain’t a profit until the money is safely in the bank, yet collecting outstanding receivables is often a sadly neglected chore. No business can afford to ignore the most important facet of their business – their lifeline – cash flow. A good example of what can happen is demonstrated below.

“I have over $100,000 owing in receivables,” said a worried dealer, “I’m just a small business operating on a line of credit. I’m in bad shape. It keeps me awake at night. What shall I do?” “How did things get so bad?” I asked. “Well, I supply the construction industry and they expect credit,” he replied, “Many are slow payers, some even go bankrupt. I get so busy and I’m short of staff.”

While larger businesses have the luxury of hiring people solely dedicated to credit control, most small businesses can’t afford that luxury – or think they can’t. Where some retailers have the luxury of cash or credit card payments only, most businesses usually have little choice but to extend credit to align themselves with the competition and industry standards.

The solution is to make time. Hire someone part-time a few hours weekly, perhaps an experienced mom returning to the workforce. By stopping an account from becoming a bad debt, increasing cash flow, not paying bank interest and getting more sleep at night, your part-time employee will soon pay for them self.

If it’s time to review your credit and collections policies and systems, here are a few tips to get you started.

1. Set credit policies and limits
Don’t be hasty in extending credit without carefully reviewing all factors and consequences. If you haven’t any formal credit policies, some points to consider include:

  • How much credit can you afford to extend?
  • Do you have a line of credit or financing if needed?
  • Will extending credit affect payments to suppliers?
  • What action will you take when accounts exceed your credit terms?

2. Use credit applications
Few small businesses bother to use credit applications because it involves another “time-consuming” chore. Look at it as income protection. Tell new customers you would be pleased to extend credit subject to a credit application being approved. Explain your terms and discounts.

You would be amazed at what you will discover when you start talking to trade references. An excellent customer’s payments may have suddenly slowed down – a warning signal – and credit referees should tell you this. Businesses are usually quite happy to supply trade references. Here are ten questions you should be asking.

  1. How long has the customer been trading with the supplier?
  2. How regularly do they purchase from them?
  3. On average, what do they spend each month?
  4. Do they pay within the stated terms of credit?
  5. Are they consistently late or on time?
  6. Have purchasing levels noticeably increased or decreased in the last six months?
  7. Have payments become noticeably tardy within the last six months?
  8. Have any of their checks ever been returned?
  9. Has credit ever been refused for any reason?
  10. Does the supplier have any particular concerns with this customer?

3. Set credit limits
You can now set a credit limit – the maximum amount of credit that you are prepared to extend – based on this information. If a higher limit is required and you don’t feel comfortable, discuss the matter. Explain that your company sets limits based on current credit information. Assure the customer that you will be happy to review this limit in the near future. You then have time to assess their payment performance.

4. Join a credit reporting agency
Because business can be so volatile, a wise investment is to join a credit reporting agency such as Dun and Bradstreet. You then have access to regularly updated customer credit information, history and reports. There are many agencies offering these services. As an example, visit

5. Monitor accounts receivable daily
The key to successfully monitoring credit limits is in regularly reviewing and updating the receivable aging list, as last month’s list doesn’t take into account current purchases. Monitor current orders before they are filled to ensure they don’t exceed the limit. If a new order does, call the customer and let them know. Perhaps they could first deliver a check?

Don’t let outstanding debts keep you awake at night; start taking control and only extend credit where it is due. Next month, I will outline a daily and monthly system to keep the cash flowing in.

Frances McGuckin is a professional speaker, trainer, consultant and author of Business for Beginners and Big Ideas for Growing Your Small Business. She can be reached at 1-888-771-2771, e-mail at

This column is available for syndication. For information, contact Frances McGuckin at

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