With interest rates and complex trading conditions on the rise, debt is becoming more difficult for companies to manage. Corporate collapses can prove catastrophic for unprepared small businesses in particular, and can add up to other causes of cash flow problems.
You should ensure you understand your market by equipping yourself with data on business contexts, collection practices and the legal system, especially if you’re dealing with a customer in a foreign market.
Here are four steps to protect your business against customer insolvency and limit cash flow issues:
1. Analyse continuously. Ensure you have the data to make informed credit line decisions.
2. Exercise caution. Know how to identify early warning signs so you can manage customer debt proactively.
3. Understand your customer. Become familiar with the political and legal systems in your market and ensure you adhere to local regulations.
4. Have a plan B. Contingency planning is key. This is most effective at the local level and should involve insolvency risk prevention.
Sometimes you have a good business cash flow management and think you have picked the right customers to trade with, but you can’t avoid cash flow problems, it’s just the way things work. It can be difficult to predict bad debt, but cash flow protection is possible. Third-party expertise and services such as trade credit insurance provide solutions to cash flow problems by helping your business protect against credit risk, safeguarding company growth.
For more in-depth knowledge on cash flow risk management, you can download our ebook How to protect your cash flow: a guide for small and medium businesses.