In most cases you should not grant these requests . If you do , make sure you get something in return ( e . g ., a commitment to purchase more , a price increase , etc .)
Take time to identify your customers who are a significant credit risk and pose a high risk of bad debt . Update your credit evaluations of these accounts , undertaking a credit policy review is recommended . This should be repeated every three months or as events require on these accounts . Adjust their credit limit and their outstanding balances as needed . Also ensure your order hold process is working properly .
Be proactive and closely monitor your key customers and other large accounts . If you are like most companies , 20 percent of your customers account for 80 percent or more of your revenue . If there should be a default by one of these accounts , inflation requires more additional sales than normal times to recover the lost profit . Therefore , you need to watch closely for any red flags indicating a deteriorating financial situation .
Consider that it is time to reduce costs to compensate for the expected reduction in revenue and gross profit . This is never easy . When used effectively , debtor ’ s outsourcing and automation are two relatively quick ways to achieve this .
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Inflation is like a disease that slowly saps your company ’ s strength . Appropriate credit and collection policies are an important part of the prescription for maintaining a healthy operating environment during tough times .
It is imperative to be diligent and persistent on raising and realizing your price increases . It is usually easier to increase prices significantly and less frequently , rather than seeking several smaller increases every few months . Verify that the higher prices are actually being invoiced and paid ( no price related deductions taken unilaterally by the customer or granted by your sales reps ).
In Conclusion
The recommended actions will enable you to minimize the adverse impact inflation can have on your business . It goes without saying that , your success in raising the prices you charge , and minimizing the price increases you pay , is a major factor in the success or survival of your business . It does not do you any good , however , if you protect your operating margins without maintaining your cash flow .
Inflation is like a disease that slowly saps your company ’ s strength . Appropriate credit and collection policies are an important part of the prescription for maintaining a healthy operating environment during tough times .
Wasilwa Miriongi is a Certified Credit Professional currently working as the Managing Director , Del Creder Credit Management Limited . You can engage him on this or related matters via email at : WMiriongi @ gmail . com .