Tip 11: Manage your credit rating

One of the key ways of maximising your working capital as explained earlier is to maximise supplier credit. This is often the most forgotten form of finance, yet probably the most important. Indeed, to use to the words of Joni Mitchell, “you don’t know what you’ve got ‘til it’s gone.” It was lack of supplier credit facilities that sunk Zavvi, the CD/DVD/Games retailer, after they lost Woolworths as their main supplier.

However in 2010 even this form of finance is not going to be easy. Credit rating agencies have been marking businesses down, even those that are doing well. Credit insurance is being withdrawn on many businesses. This situation may well get worse as company accounts covering the recession period start to be filed with companies house, as many of these will show a deteriorating financial position. Add this to the general uncertain climate, and it is easy to see why obtaining supplier credit in the right quantity on the right terms is going to be challenging.

Don’t get caught out by this. Manage your credit rating by keeping an eye on it, and if necessary contacting the credit reference agency concerned or your key suppliers with more up to date numbers. This, of course, is one of the benefits of preparing regular management reports and accounts.

By being proactive you can maximise your credit and protect your cash flow. But remember not to ruin it all by abusing your credit and extending payments unreasonably. Suppliers are stakeholders in your business too. Look after them and hopefully they will look after you.

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