Author: Tiaan Geel

We are constantly bombarded with the words “Pay it with cash, don’t buy it on credit!” Now, paying with cash is better when you wish to live within your means, but if you wish to grow your business you are going to need credit in some way or form.

The first Vitamin C deficiency article spoke about cash flow and how the shortage thereof is detrimental to a business. One of the ways that a business owner can improve its cash flow is to use and properly control the credit facilities it has been granted. This allows a business to buy stock, assets and incur certain necessary expenses if it does not have the cash available to do so immediately.
A lot of businesses purchases stock with cash and then sells it on credit to its customers. Don’t buy for cash and sell on credit! This is strategic suicide for a business and will harm your business sooner than you can imagine. Why buy your stock for cash when your suppliers are giving you interest free payment for 30 days, sometimes even offering you discount if you pay sooner! Why not thank the bank for allowing you to pay off the vehicle in 5 years rather than buying it cash? Your cash flow will be much better if you are paying it off over the 5 year term, and the tax benefits are also then spread over the same term as the payments.
Credit to your customer’s is equally important as you need to keep them happy, but control your debtor’s days by getting your money in quicker. Do not allow your customers to control your finances. In order to synchronise the debt you grant a customer with the credit you are given by a supplier, you must control the credit you are granted by your suppliers carefully. Use these facilities with your suppliers wisely and use the bank’s money to grow your business. If you can pay your creditors quicker because of more cash in the bank, then take the 2.5{2a528d543e649344218b0d4736065faf57f3cd51818dd3afc8a9acdf78ec18ee} settlement discount option. It is more than the interest you will receive with your bank and the relationship with the supplier is built faster and they will trust you more.
Credit is a business tool that needs to be used and controlled properly.