Shortening your cash cycle

[NickVasas]

Hi

I've been reading the 10 steps to business survival website, step 3 discusses shortening your cash cycle.

One of the points is developing a a system that brings accounts that have reached your credit limit to your attention. What do you guys use, a manual checking system or automatic (software) solution?

Cheers
Nick

[ray_223]

Hi Nick,

We have just been doing it manually. Off the shelf packages are great but I find it really difficult to automate them into the exact business processes I want to follow.
I'm a software developer by trade and have been considering creating a full business end to end solution for our business.
This is a huge undertaking - but if it can save an hour a day and improve the customer experience I believe it will be worth it (in about 5 years!).

I'd also be interested in what others do regarding your question and automating business processes in general.

[linkman]

Hi Nick.

I am an accountant by trade and have used every system that there is - well maybe not some .

The best method is: automation and human intervention.

Both Qb's and MYOB allow you to set credit limits and they can be useful. The problem is the maintenance and setting the right limit. Lets look at an example.

Suppose a new clients starts slowly and racks up 2k in his account quickly and pays well. You adjust the setting and make it 5k. Then he gives you a big order for 7k that is outside terms. What happens.

In practice credit limits, IMO, are a guide that should be used with a person reviewing them periodically and adjusting where necessary. Small business doesn't normally put credit limits in place and this is good practice because it forces people to pay when they need something. They work best for suppliers that provide "required" goods or services. It is a little bit more difficult for me for example to put a credit limit on a client as they need work done and it can usually wait.

I have very successfully used credit limits in a larger companies where the products are needed urgently or where we were the only practical supplier. Otherwise I found them to be a lot of work for little return.

[whateverbusinesssolution]

Hi Nick,
My experience suggests that this is best achieved through clearly establishing your credit terms with your customers.... setting credit limits really only identifies how much exposure you wish to take with a particular customer.... there are a number of other ways to shorten your credit cycle and I would be happy to discuss these with you if you are interested, or check out our website in the case studies tab ....

Cheers, Warren