Case study - growing a business with credit

Bad debt will be inevitable if you provide credit. The key to surviving bad debt is being aware it will occur and plan for it accordingly through appropriate cash flow, credit risk and accounting strategies.

Anna's Office Massage Solutions is a small team of trained masseurs that run office wellness programs for a small number of corporate clients. After 12 months in operation the business sought to expand its client base however they struggled to acquire new clients because they didn't offer trade credit.

Anna had heard some horror stories about small businesses extending credit and was a bit wary about the idea. However as Anna discovered, if done properly, granting credit can provide a major boost to your profitability. The key to Anna's success was that she took the time to plan and prepare. Anna sat down, did her research and determined that managing credit in a small business hinges on information, communication and cash flow.


Anna realised that in order to make smart business decisions she had to have quality information at her fingertips. The more she knew about her customers before she extended credit to them the better her chances of getting prompt and full payment.

To achieve the required level of customer understanding, Anna implemented a simple credit checking process within her business. She also established a credit policy to ensure that all potential customers (regardless of their size) were checked prior to the extension of credit as her research had revealed that big companies are often slower to pay then their small business counterparts.

Anna also made it clear to her small team of masseurs that they may have to turn customers (bad payers) away because the loss of a sale is more manageable than a persistently late payer that impacts cash flow and spreads resources thin as the business seeks to recoup outstanding monies.


Clear communication and quality documentation contribute significantly to a good business relationship. Anna made certain that her team communicated effectively with their customers and provided all necessary documentation at the outset of a relationship. She also insisted that follow-up on invoices was timely, a key aspect in managing collections and cash flow.

Cash flow

We all know that cash flow is the lifeblood of business and that a lack of funds is a key contributor in the vast majority of business failures. So, Anna took the necessary precautions to ensure that her business maintained a healthy cash position.

When you extend credit you temporarily slow down your cash cycle - it is important to anticipate the impact of this slowdown and prepare for the reduced cash flow. For Anna, this meant building up additional cash reserves before credit was extended.

Anna's second tip for managing cash flow is to properly control the credit that you extend. This means you need to ensure that debts owed are paid in a timely manner. Late payment or non-payment of debts wreaks havoc with cash flow, not to mention the high labour costs associated with collection efforts.

By going through this planning process before providing credit Anna's business was able to achieve its planned expansion through the acquisition of new customers. The business also benefited in other ways, including:

  • Increased sales: the ability to access products and services on credit encouraged existing customers to buy more
  • Improved profitability: higher sales = a healthier bottom line. 
Many small firms have fallen over because they didn't put the right systems and processes in place. However many more - such as Anna's Office Massage Solutions -  have achieved outstanding success. In today's fast-paced business world extending credit to customers is increasingly becoming the norm. Therefore it is important for small
businesses to ensure they plan correctly so that they stay in business and ahead of the pack.

This case study was taken from D&B's Guide to Cash Flow and Credit Risk. Click here to find out more>>

   D&B Guide to Cash Flow and Credit Risk.bmp

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