Payroll credit terms: risks and hidden costs to your business

We understand the benefits of credit terms, in creating financial leverage and access to cash flow management. In the short-term accepting credit can have a huge effect on a growing business. However more recently, we have seen news articles showing the damaging effect of credit in over-leverage and forever changing, economic conditions.

It’s important to understand what is being offered when accepting credit and what seems to be, a financial injection into your business. They can present several challenges, which need careful consideration and management. 

1. Dependency on Credit Terms and the Company providing them:

⚜ As a business you are now locked into a partnership with a company based entirely on a financial relationship. Your business can become overly dependent on your provider and will remove your leverage as a client to insist on market best practice and customer service.  

2. Increased Administrative Burden:

⚜ Managing credit accounts requires additional administrative work, including the issuing of invoices, tracking payments, and following up on overdue accounts.  

3. Vulnerability to Economic Downturns:

Vulnerability to Economic Downturns:  

⚜ During economic downturns, the risk of default or insolvency increases, which can leave a business at significant risk.  

4. Reputational Risk

⚜ Poor handling of credit terms and payment collections can damage relationships with clients, affecting the company’s reputation and future business opportunities. 

If you are considering your payroll option or you are new to navigating the contractor world, please give Bishopsgate a call!  

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