Credit Management Tactics to Improve Your Working Capital
Every businessman aims at maintaining sufficient working capital to manage daily operations and meet emergency funds requirements. If you’ve been following the business market thoroughly, you should know that not all products promise profit margins. There’re a lot of products that come with low-profit margins. If your business deals in selling and buying these products, it’s necessary to manage your working capital effectively so that you can have sufficient cash in times of need.
Another thing to understand here is the role of business credit management. Your payment defaulters can impact your creditworthiness, and you may find yourself in a financial crunch. While it’s good to have a decent working relationship with your suppliers and buyers, it’s relevant to know where to draw the line when it comes to lending credit or offering repayment terms.
In this blog, we’ll discuss a few credit management tactics that can help you maintain sufficient working capital.
Manage your inventory well
If you’re a wholesaler or a distributor, you don’t need to have a fair understanding of managing inventory, especially for peaked seasons and emergencies. So, it’s better to find warehouses to store and maintain raw material. You should also keep a ready stock of finished goods to avoid expenses and unwanted costs. MSMEs are expected to maintain a large inventory to meet the buyer’s needs. However, you must pay equal attention to acknowledge material transaction receipts and invoices. It allows you to maintain transparency in the process.
Remember that inventory management helps you track income and expenses alongside understanding selling prices and improving process efficiency.
Set better payment terms
Create thoughtful business strategies to gain creditworthiness, i.e., offering shorter delivery times and better payment terms to your suppliers and buyers. If a vendor has purchased material from you recently, but he or she failed to make payment on time, it’s not a good start. You may fall into a financial dispute if you don’t acknowledge your material transaction. In this case, you can seek help from credit management companies like CreditQ. Not only do you get help in settling payments with your business credit defaulters, but you can also start trade with the right terms and conditions. You can register your business and start trading the right way.
Check credit information reports regularly
Along with checking your business credit report, you should also review your client’s credit information report. If you’re planning to lend credibility to your supplier, you should first know about his or her business performance. A credit information report helps you analyze their borrowing and repaying capability. Never make haste in working with a new customer. It’s better if you have everything set in order. It can help your business stay away from future business frauds.
Identify payment default risks
For better business credit management, you must identify and analyze risks attached to lending credit to other businesses. When you update the credit limit, you avoid high-level payment fraud risk. When prospects turn into customers, it’s time that you evaluate their creditworthiness and if they would be able to repay the debt. The crux here is to identify payment default risks.
You can be smart enough to review their business credit reports, ask other businesses for a review, or research on your own to satisfy yourself. Once you’re done with the evaluation, you can decide whether it’s safe to lend them funds or risky for your business.
When you deal with a business credit defaulter, you may find difficulty in improving credit management. Your money is stuck, and you don’t know the exact deadline to settle payments. That’s why you need a robust credit control process that lets you keep a check on your credit offerings and helps you enjoy financial freedom.