A new report by the Small Business Growth Index showed that over half of South Africa’s SMEs are at risk of closure in the next year.
Running a small business in South Africa is tougher than ever. Ongoing local challenges, global instability and shifting tariff laws are making it difficult to stay afloat, especially when up to 85% of the country’s SMEs operate on credit.
Entrepreneurs are often left in the dark when it comes to regulations, raising capital and selecting the right clients to work with. It’s crucial for small business owners to understand the importance of credit management in helping their company not only survive but also thrive in uncertain times.
Frank Knight, the CEO of Debtsource, highlights 5 tips on how to implement effective credit management for businesses and why it works.
- Comprehensive client vetting
Don’t guess. Knight wants entrepreneurs to understand that when it comes to offering credit to clients, comprehensive checks are essential. To ensure that payment comes in, business owners need to complete due diligence before offering terms. Assess a customer’s financial health using credit bureau data, trade references and payment history. Solid vetting stops risky customers before they ever land in your books.
- Cash is king
Cash flow is vital for the survival of SMEs. Knight explains that helping clients get paid on time and managing their credit process effectively will ultimately help them survive and gain a competitive advantage. This can be done through aligning sales and finance on credit terms. When sales and finance work together, deals can be structured smarter. The right process can be the difference between survival and growth.
- Consistency is key
A credit policy only works if you enforce it. If you make allowances for one customer, others will expect the same, and discipline quickly erodes. Train your team, apply the same standards to everyone, and track compliance. The more you enforce your process, the more predictable and stable your cash flow becomes. Consistency builds financial resilience.
- Putting credit management on the agenda
Credit management is no longer just a back-office function; it’s a strategic business decision that directly impacts profitability, and Knight believes it should be on every boardroom agenda. Effective credit management helps identify and manage potential financial risks before they escalate. By ensuring timely payments, credit management contributes to steady cash flow and operational efficiency. Proactively managing credit can foster trust and ensure long-term, healthy client partnerships.
- Avoiding disputes and managing them when they do happen
When thorough customer vetting takes place in the early stages of setting up credit management, the majority of disputes can be avoided. But in reality, defaults and disputes can occur even with the best practices in place. When disputes do happen, Knight’s top tip to remember is that trade credit insurance only covers indisputable defaults, business rescue and liquidation; it doesn’t include disputes or frauds.
South African small businesses are tomorrow’s corporates. They deserve the tools and support to grow, and that starts with taking credit management seriously.
