Credit Policies for Good Cash Flow

Controlling Your Cash Flow: Credit Policies

The kind of credit policies you have will vary depending upon the nature and size of your business. Many B-to-C (business-to-consumer) businesses do not extend credit. Sales are by cash or debit/credit card only. This clearly simplifies the collection process, which should just need to deal with isolated problems, such as a disputed credit card chargeback.

Most B-to-B (business-to-business) businesses extend credit to at least some customers. If there are only a handful of relatively large customers, it can be easy to monitor them manually. If you grant credit to many smallish customers, you'll likely benefit from some formal credit-and-collection policy and some automated accounts-receivable follow-up procedures.

Cash-flow management isn't quite the same as managing a budget. While your cash flow projection should be reflected in your business budget, the budget for a company typically includes non-cash items, such as depreciation of fixed assets.

In larger companies, cash-flow management may inevitably lead to treasury management, particularly for companies with different divisions which may be located in different countries. Treasury management is outside the scope of this guide, but I will also consider the different financing needs of the components of the company and fluctuating foreign exchange rates for operations based offshore.