When it comes to credit management, one thing you always need to remember is that cash in the bank matters, as cash flow is key. While building strong customer relationships and providing excellent products and services are also important, if your organisation isn’t getting paid on time, it can lead to serious financial consequences.
What’s so great about cash? Well, unfortunately, you can’t spend IOUs. No matter how much money you are owed on paper, if you’re not actually getting those payments in, those outstanding invoices aren’t doing your business much good.
Here are just three of the many reasons you need cash in the bank:
- Liquidity – cash in the bank means having money to spend
Unfortunately, you can’t spend money that a customer owes you, so you’re going to have to keep chasing them for payment. Of course, once you’ve got that money, you can use it to invest in the business, buy supplies or pay employees.
- Creditworthiness – You don’t have to worry about credit
If you don’t have cash in the bank, you’ll still need money to spend, and that might require getting a loan from the bank. But without a high account balance, banks may not be willing to lend you money (or at least not as much as you want).
- Earning interest – It’s better to earn interest than to pay it
Interest is fab when you’re earning it on cash stored in your bank account. It’s not so great when you have to pay it to the bank because you took out a loan.
Robust payment collection strategy
To ensure a steady stream of cash in the bank, it’s important to implement a robust payment collection strategy. This includes maintaining strong customer relationships, providing excellent products and services, and having an efficient system in place for tracking payments, dealing with late payments, and following up on outstanding invoices. It is therefore crucial to organise your data well, track trends and plan actions appropriately. One thing that can make all of this easier is having the right tools.
Investing in the right tools can also help make this process smoother and more efficient. Onguard credit management software has been designed specifically to help teams throughout their credit management process. The system makes it easy for you to record and share information with relevant teams, create to-do lists and automate actions. The result? A lower DSO and of course, more cash in the bank.