Coin Tower

The benefits of creditor management


All companies have a number of creditors that usually fall into the category of your bank or finance provider, suppliers and statutory bodies like HM Revenue & Customs (HMRC). So your business can continue to run smoothly, the need to build good relations with all your creditors goes without saying, especially if problems may occur in the future.

Why do you need to manage your creditors?

A strong relationship will help if you experience any difficulties with your business. Creditors are more likely to show understanding if you have displayed good cash flow management. By identifying your key creditors, you can make sure you have the support of each of them if you employ a range of strategies. The investors in your business are usually regarded as the most important creditors, and your bank should be treated as a key stakeholder in the company. Provision of management accounts on a regular basis will keep them informed of the current status of the business. Management accounting provides a clear picture of the company’s health at any one time.

What do you gain by managing creditors?

If you have displayed positive behaviours throughout, your creditors are more likely to be understanding if your business experiences problems. You rely on them for prompt payment to be able to pay your suppliers in a timely manner. If your customers are making late payments or not paying at all, you could have serious difficulties with your cash flow. For a temporary situation though, your creditors may be willing to extend your line of credit until you have implemented a solution.

Building a good rapport with creditors will enable you to compare suppliers and get the best rates and terms for your company. Most companies have purchasing objectives, and these consider their reliability, the quality of their product or service, the cost and their credit terms. With a proven history of creditor management, you are more likely to be able to negotiate favourable terms with a supplier.

As suppliers get to know you, they may be able to suggest how to improve your product or service, as most will supply other companies not dissimilar to yours.

Managing your creditors will ensure that you can continue to trade on favourable terms, which is of particular value in times of economic difficulty, when you may face temporary cash flow problems. If you would like to discuss how to manage creditors to your advantage, call us to arrange an informal chat.