Cash flow and credit for small accounting firms
Good credit is an essential tool for all accounting firms. Access to credit can help smooth out fluctuations in their cash flow and also allow them to expand the firm when opportunity arises. Managing that credit is an important skill that each small accounting firm owner must master. While each firm is different and will have different strategies for managing credit a good strategy will encompass a defined number of areas.
The first thing you must do is choose the credit sources wisely. This maybe be a simple as choosing the right credit card for your firm or as as complicated as analysing the various credit options available to you such as revolving lines of credit or an installment loan. While the right answer will vary depending on the nature of the firm and what is being funded but as a general rule of thumb revolving lines of credit including credit cards are better for funding inventory and working capital while fixed loans are better for funding plant and equipment.
To insure you get the best possible rate of interest it is important to maintain a good credit score. Often by monitoring your credit score it will also help you to improve your accounting practices. It is important to check it on a regular basis as some people will use your credit score to determine if you have the financial ability to fulfil their contract, so a bad score will not just deprive you of credit, but also in some circumstances, sales.
To maintain that credit score you will need to pay your bills on time, but managing your cash flow and reducing how much credit you use will also depend on not paying your bills too early. If a supplier is giving you 90 days of credit to pay their invoice rather than pay that bill early it is better to use that to money to pay down other lines of credit such as credit cards where you are paying interest or even put that money in an interest bearing account until the money is actually due.
Positive experiences with your vendors and suppliers can help increase your credit score. While monitoring for bad credit references is a common business practice not many business owners pay attention to making sure positive things about your businesses payment history are included in your credit file. While not every supplier will report to credit bureaus you can have your suppliers give trade references to your Dun & Bradstreet file which will help your credit score.
It is never too late to start working on your business credit score and even more important if you are a new business as you are likely to have much greater credit requirement in relation to your ability to attract credit in your early years. By following these simple practices and never taking on more debt than your business can reasonably afford you will have laid the groundwork for credit working for you as you build your business and not against you.
Director of Accounting for Private Educational Institutions at Jefferson+Partners (Sydney) from 2007-2015. Founded and led Lebrau & Partners Pty. Ltd. from 2015 until now - a boutique accounting firm serving educational institutions across the Asia Pacific (both public and private, primary, secondary and tertiary institutions).