It’s possible to protect your business from financial hardship during inflation. The key is implementing effective credit control strategies ahead of time.
When prices rise faster than incomes, it results in inflation, eroding the value of money. During this time, you’ll notice more and more people expressing their frustration about the cost of living. Some will delay major purchases like cars, homes, or appliances, while others may turn to loans or credit cards to cover additional expenses.
Without effective credit control strategies, businesses will experience challenges with cash flow. This is because they are often forced to choose between raising prices (potentially losing customers), or maintaining their current pricing and accepting less profits. On top of that, consumers may become more cautious about spending. This will lead to a decline in demand for most goods and services.
Is there a way to improve cash flow during inflation? Absolutely. Here are several tips for small businesses.
The first step is to evaluate your current credit procedures and adjust. This involves gauging your existing credit terms, limits, and payment schedules to ensure they align with the current economic environment. Additionally, it's important to review the limits for each customer.
For example: if you have a corner store, you may discover that some people have been taking too many items on loan without paying on time. To address this issue, you can charge fees to discourage late payments. Another tactic is to set a limit on how much new customers can take on loans.
Explore the possibility of purchasing insurance to protect your business against losses and bad debts. Understand that during inflation, customers may struggle to pay their debts. It’s especially important to monitor existing clients closely. A person who has always been reliable might begin to experience financial difficulties.
Incentives are a great way to mitigate the chance of late payments. Provide discounts to customers who pay their invoices early or within a specific timeframe. For instance, you could give a 3% discount for settling the bill within 10 days of the invoice date. Don’t forget to highlight your current incentives or rewards programs online.
Send personalized acknowledgments to consistent customers. It’s a win-win strategy that helps you maintain liquidity while delivering value. Make sure you’re offering multiple payment options (e.g., credit or debit cards, bank transfers, e-wallets, etc.) to ease transactions.
An efficient invoicing process is essential for any business, particularly during inflation when every cent counts. Ensure the accuracy, clarity, and timely delivery of your invoices. The quicker you send them out, the sooner you can get paid.
By automating your invoicing process using specialized software, you can greatly reduce errors and delays. Automated systems streamline invoice generation, send timely payment reminders, and deliver real-time tracking. This keeps customers informed of their financial obligations. Ultimately, it saves time and improves overall efficiency.
Having a well-defined collections process is key to managing overdue accounts successfully. This method should include clear steps for following up on overdue invoices, such as sending reminders, making phone calls, and escalating to a collections agency if necessary.
While enforcing strict credit control measures is crucial, maintaining positive relationships with your customers is equally important. Good communication and transparency can go a long way in building trust.
When costs of living are high, some customers may face genuine financial problems. In such cases, being flexible and willing to negotiate can help preserve that professional connection.
For instance, you could offer installment plans or extended payment terms to clients who are struggling but have a good credit history.
The impact of inflation on businesses can be unpredictable and vary over time. Therefore, it’s vital to frequently review and adjust your debt collection efforts to ensure they remain effective. This includes monitoring key metrics such as days sales outstanding (DSO), the percentage of overdue accounts, and the aging of receivables.
Inflation can hinder small businesses from maintaining profitability and competitiveness. But with effective debt control strategies, it’s possible to manage risks. Modify your policies, monitor credit, and improve invoicing and collections processes to keep things running smoothly.
Most importantly, strengthen customer relationships and give allowances when necessary. By taking these steps, your business will not only survive but thrive during periods of economic uncertainty.
Using Mochi’s automated features, you can effortlessly follow up on overdue accounts, monitor customer payments, and generate financial reports. Based on these factors, you can then make credit management strategies to suit the occasion. Take advantage of the 60-day FREE trial with zero commitment. Begin your better billing journey with Mochi!
Mochi Solutions is a billing and collections platform designed to help Filipino businesses get paid on time, every time. By digitalizing the invoicing process and automating repetitive tasks, we empower businesses to focus on growth.
