South African businesses were not immune to the global financial crisis. The slow economic growth of 2013/2014 is predicted to continue into 2015 and beyond. Real disposable income of South African consumers is declining, partly owed to their high levels of indebtedness and the banking sector’s stricter lending practices, says the Industrial Development Corporation. This is not good news if you supply products or services on credit, says Don Pitsoe, a business mentor at The Hope Factory, in this month’s SmartProcurement.
Household spending is expected to be curtailed by factors such as high consumer indebtedness, rising inflation and higher interest rates. We have witnessed the demise of Ellerines, a furniture retailer that relied heavily on credit, and we have noticed that having good risk management systems in place is important for business survival.
But where do you start when you are small to medium-sized supplier?
Pitsoe offers a few practical steps that suppliers can take to implement clear processes:
Payment policies
– Document company payment process to ensure consistency.
– Sit with your accountant to help you document your systems and procedures.
Payment processing
– Give all customers a welcome letter stipulating terms of payment and make sure all customers understand the payment process.
– Ensure that all invoices sent to suppliers comply with their payment policies, for example, inclusion of VAT number, company registration, bank details, order number, clear service/product description and contact person.
– Encourage customers to pay invoices individually so that there is an audit trail (batched payments are not easily matched to individual invoices).
– Ensure that invoices have order numbers and use a consistent method to input order numbers.
– Any special notes regarding the transaction and any discounts must appear on the invoice.
Debtor analysis
Review your debtors age analysis every month and try to negotiate with your customers to pay you earlier.
Inconsistent payment systems and processes can cost you a lot and even liquidation. In today’s market you must be paid, so why risk non-payment it with inconsistent strategies and inadequate processes?
