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Free Articles & Resources - intuitive and inspirational
Developing a Credit Policy
All business organisations are subject to higher operational costs, limited resources, and shorter product life cycles. Markets are also becoming more competitive and the move from selling to relationship marketing (focusing on customer loyalty and building meaningful customer relationships) is on top of every successful organisation's agenda.
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Synergy between the Sales and the Credit Teams
One of the difficulties that firms are facing is internal conflict between departments and business units. The sales and the credit departments rank high in these internal conflicts.
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Effective Measuring Tools
Change is the only mantra in today's business environment. The Credit crunch has changed our usual routine of doing business. Business owners, CEO's and senior managers are striving to keep the running cost of their business as low as possible. They are doing their utmost to develop strategies in order to keep the wheel turning..... and rightly so!
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Economic turmoil affects businesses negatively since demand for products and services dwindle. During these difficult times, firms should keep in mind that cash flow is critical for the survival of a business and they should invest and focus on Strategic Credit Management, which is the policy that helps a business organisation manages its cash flow.
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The Credit Crunch demands reducing the cost of operations
The current business scenario does not offer peace of mind – the sky seems to be falling. We are constantly learning about companies declaring huge losses, other businesses are going bust, redundancies are the order of the day in all economic sectors, governments are bailing out the once reputable companies, national debts are getting worse if not out of hand, no ‘feel good factor’ exists amongst the consumers….The only certainty is that the credit crunch is at its best.
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Internal Culture Change Required
Currently being faced by a business scenario characterised by oversupply, globalised intense competition, slim profit margins, and low priced products from the Asian producers, most businesses still fail to invest adequately in their employees and in R&D in order to find ways and means to gain and sustain competitive advantage.
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The Credit Function - A Necessary Evil?
Irrespective of the industry that we do business in, we are being faced by a hostile commercial environment. Who is in business knows well that in some industries, supply is exceeding demand and customers are becoming more knowledgeable and powerful. Customers are dictating the markets and those firms that are not meeting or exceeding customers expectations are struggling.
The World Cup 2010 and the organisation of a Business
I was waiting keenly for the 2010 World Cup for two main reasons.
Firstly, it was being hosted in the African continent for the first time, where, in my opinion, the African countries are taking this game seriously and are playing good football. Hence, they deserve it.
Secondly, I couldn’t wait to admire the individual players who are renowned for their thrilling football actions. Those players coming from all over the world, who we usually follow them playing for big European football clubs such as Inter,
Barcelona, Manchester United, Bayern Munich, and the rest.
A New Business Resolution
‘No man is an island’ can be translated to ‘No country is an island’, as economies depend heavily on each other. Although a particular firm may have not suffered from an economic recession, it should still keep in mind that these turbulent economies may however have an impact on their trade, hence cash flow and profit.
Business Failure by Overtrading
Remarkable sales figures and improved short-term profits do not necessarily indicate ongoing success of a business. Strange as it might seem, fast growth is not always sustainable and may damage the cash flow and the profitability of a business in the longer term, especially if the business is in its developing stage, or if the business does not have the adequate resources to satisfy the increase in demand.
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During Recessionary Times
A compendium of business studies contend that improvements in the internal systems, processes and procedures would result in better profit. And this also applies to the credit function. If we had to improve the way we grant and extend credit to our customers, it would probably attract more profitable sales, improve cash flow and ensure long-term profit.
Effective Collection Through Positive Attitude
Credit has become an effective marketing tool and an essential source of finance to many businesses and consumers.
Both the creditor and the credit customers should be fully aware that credit is granted not only to make a one sale possible but also to build and maintain a mutual long-term business relationship between the seller and the buyer, and this business relationship should justify the costs involved in credit. In other words, the creditor is investing money in the credit customer and as any other investment, it should be profitable.
Legislate or educate?
On the 20th October 2010, the European Union voted in favour of a new Directive to combat late payment in commercial transactions within the EU market. This Directive will replace the existing Directive 2000/35/EC.
The scope of the European Commission and Parliament is to change the present business culture - that of paying late for the supplies of goods and services received.
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Protecting Our Largest Liquid Asset
Trade credit is the largest source of business financing and many economists contend that trade credit is the economic fuel driving the worldwide economy. This hypothesis has been evidently proved and confirmed by many businesses that are finding it difficult to get the usual credit terms from their suppliers due to the current international economic and financial turmoil.
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Credit Management - beyond our shores
International trade is inevitable in today’s economy. One country depends heavily on others more than ever before, as modern countries are specialising in their particular industries and are becoming less self sufficient in order to benefit from economies of scale.
This commercial scenario entails firms to be more vigilant and competitive in order to meet customers’ changing needs and expectations at international level. Therefore, successful firms are investing in producing and providing goods and services that add value to customers, whilst customers are constantly shopping around for the best products at the best prices. Hence, firms are committed to sell on credit to gain and sustain competitive advantage in their markets, as credit is in demand by customers.
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The Credit Function - its role in 2012 and beyond
No one in business denies that the commercial environment has changed. These changes have brought about a number of critical factors which have a direct impact on the operational activities of businesses.
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Restructuring the Credit Function
Business owners and company directors are anxious and edgy, and rightly so, because their responsibility is not trivial in such an economic environment. Strategic decisions are not easy to take, let alone implement. They are looking for ways to reduce their running cost and this is surely commendable.
· But, is reducing the number of employees the only practical option?
· Is it feasible to make skilled and experienced workers redundant?
· Is future re-employment and induction training costs being factored into today’s redundancy exercise equation?
· Is this strategy a short-term relief with long-term implications?
· Can we do without it?
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SMEs - Trade Creditors
‘To what extent are SMEs being assisted to continue growing and creating more jobs that add value to the economy?’
To assist SMEs and hence, meeting their needs and expectations, one has to get to know what they are demanding and what their requirements are.
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The Name of the Game is to Ensure Sound Cash Flow
'People in business should think positive. They should strive to satisfy, if not exceed, the ever changing customers’ needs and expectations in order to gain and sustain competitive advantage in their respective markets. And what are customers demanding and expecting?
Customers are demanding high quality products, good customer service, lower prices and advantageous credit terms. Therefore, business strategists and managers should continuously invest in their employees to focus on customers and this also applies to the people involved in credit.'
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Getting Paid on Time
'Lacking an efficient and accurate invoicing process may lead to late payment and disputes with customers with the consequence of thwarting the hard earned good customer relationship and also prompting cash flow difficulties to the firm supplying the goods or services. Therefore, businesses should recognise the importance of the invoicing process and must perceive it as part of the whole business transaction to the benefit of both the seller and the buyer.'
Brand Equity
Investing in Brand Equity is becoming an effective business strategy not only to retain customers and maintain competitive advantage but also to secure sound cash flow and ensure better profit.
Doing business in a hostile commercial environment, where late payment, payment defaults, bankruptcies, increase in operational cost, and most negative economic omens effecting us from abroad are the order of the day, firms should employ strategies by which they can build differentiated brand equity.
Managing Credit Effetively
There exists no perfect world!
Late payment occurs when selling on credit and the best way to being both effective and efficient in managing credit is by categorising the credit customers and take the appropriate action proactively in respect of each and every category.
It is commendable to categorise the credit customers according to their payment behaviour. Categorising customers helps the credit practitioner to get to know the customers better and to understand the customers’ different attitudes and behaviour, while deploy the limited resources where they are effective most.
Looking Forward to 2013
One can develop and work on a strategy or a business plan any time, but a New Year looms ahead of us like a clean sheet of paper, upon which we have the power to deliberately compose our achievements and successes ahead of time.
We are in that time of the year when instinctively we look back and analyse what went wrong, why it went wrong and what should have been done better. Business owners and executives meet their peers and set objectives and strategies for the coming year with the aspiration that next year will be a better one!
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