Did you know that 85% of new small businesses close down in the first year of operation!
According to a report conducted in an issue of USA Today, the statistical failure rate of small businesses in America is staggering.
- In First year of business 85% of small businesses close
- Second year statistic is 70%.
- Third year in business shows a small improvement in staying power; 62% of businesses will stop working by now
- By 4th and 5th year retrospectively, 55% and 50% will be closed
The data for failure of small business varies from country to country, from source to source, but the average statistical data of business failure in most western style economies is skyrocketing high!
When operation of new businesses is analyzed, management of cash flow is one of the critical areas of planning that is quite often underestimated and therefore overlooked.
Let’s be honest, clearly defining and implementing a professional credit management system is something that very few new businesses ever prioritize in their first year.
How well you do your debt collection can make or break your business.
Every business has different methods and issues with getting paid. So let’s look at some of the key factors in running a successful Credit Control & Management System:
- Taking time for proper financial planning, policies and procedures to get the business started and to keep it operational (this will save lots of time and money later)
- Developing and defining Terms of (Business) Trade and Credit (Clear payment terms are a must for any business)
- Developing procedures for credit checking of prospect customers/clients (this will weed out potential bad clients that you do not want in your business)
- Having accurate and timely billing (the sooner your client receives your bill, the sooner the payment is due)
- Sending Statements/Reminders (Regularity will bring steadiness in your cash flow. Do it every week if necessary!)
- Developing and implementing Debt Collection/Recovery procedures and techniques (Steps in following up bad debt)
- Managing and controlling bad debt by outsourcing (do not write off bad debt; instead use professional debt collectors & legal debt recovery options)
Ensuring that your business has all of these key issues attended to will ensure that you have access to enough cash flow to keep you going through the controlled growth stages of your business. This will allow you to keep you focused on developing and improving your main product or service.
Now, ask yourself: Are you ready to make necessary changes in your Credit Control approach? Is it worth putting extra planning, time and effort into your debt collection system? Once you answer honestly to these questions, you will know if you are ready to make the transition from a new small business to a financially successful small business!
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