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Matthias Schneider - 16 Jul 2019
Credit declined! Many SMEs have already experienced this for themselves. Almost half even receive several refusals until the financing finally succeeds. 23% of all SMEs do not know why the bank rejected the application in the event of a rejection. Entrepreneurs, on the other hand, who understand their business and credit scores, have a 41% better chance of getting a business credit. With these 6 tips on Cash Flow Management, you can improve your credit rating and thus your chances of obtaining financing.
Has your credit been declined recently? Probably your creditworthiness played a decisive role in this. But that doesn't have to be the end of your ambitions. Simply pay special attention to the management of your cash flow. This not only improves your creditworthiness, it also gives you better financial conditions if the credit does not work out.
In the first step, create a credit policy and define the credit limits, the full terms of the credit policy, which means of payment you accept (cheque, credit card, etc.) and the information about customers that you imperatively need. When you check a customer's financial situation, you reduce the risk of late payment and even have the information you need to raise the credit limit and exploit potential.
Before you build up cash reserves, it is necessary to estimate the fixed costs. Then you do the same for the variable costs. They often come up unexpectedly. Therefore, spend more time estimating them and collect as many potential expenses as possible. As soon as you have substantial reserves, unexpected larger expenses will be now problem for you anymore. You will then be able to pay them without the help of credit cards or additional funds.
Think about using a so-called payment plan for your customers. This will let you know when the next payment will arrive or when you can expect it. Also keep track of every credit card transaction as part of your cash flow calculations. Automatic renewals help you keep your cash flow steady. Don't forget to draft invoices early. Many companies tend to pay late. If they also receive their invoice late, a timely receipt of payment is unlikely.
No Cash Flow Management without thorough and regular planning. Take enough time for that. Think about when and whether you will make less sales or when things will go well. Keep a meticulous eye on your earnings and expenses. Seasonal influences always play a role in the forecasts. Make sure that you take these into account during planning. But the most important basic rule is: Do not plan too optimistically.
Learn how Big Data influences your credit management today and how you can use it to your advantage.
Companies in a seasonal business have a hard time with cash flow anyway. Suppliers expect them to pay quickly. However, they sell to their customers much later. So they have to pay first, then receive their payment. In this case it's time to negotiate with credit card providers about better conditions or to place larger quantities with traders. Unit costs often drop rapidly for large orders.
Many managers don't like to care about accounting. The good thing is: There's help in the market. Think about hiring an accountant. So someone who keeps the books in detail, knows the software and keeps you up to date with the latest figures. Then hire someone to do your tax return.
Timely payments are not only important for building business relationships, they also ensure a good creditworthiness. Once this is assured, the chances of getting a credit are much higher. You even have better cards in your hand if you negotiate the repayment terms and interest rates.
Your financing is not guaranteed? Then Cash Flow Management is your first priority. This will massively improve your financial situation and allow you to take care of those who rely most on you - first of all your employees. It will also improve your creditworthiness and open the door to business credits. So nothing hinders your growth.
Cash Flow Management is an important part of the Working Capital Management. If you apply its principles consistently, you will always have sufficient funds for investment and healthy growth - and reserves for hard times.
Working Capital Management consists of Accounts Receivable Management, Accounts Payable Management and Stock Management. How do you implement this in detail? Please read our article "Working Capital Management: “That’s how it works and why it is so important”.
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