Loan processing vs. credit management outsourcing

Loans and credits are different finance mechanisms. Both are banking products that provide capital to the borrower. But they differ in terms of definition and objectives. 

A loan provides all the money requested in one go at the time it is issued. In the case of a credit, the bank provides the customer with an amount of money. This can be used as required, using the entire amount borrowed, part of it, or none at all.

The loan is repaid in regular instalments and furthermore:

• The transaction has a predetermined life span.
• Once all the capital has been repaid through the payment of the instalments, the operation is concluded. It is without the possibility of accessing more money unless a new loan is arranged.
• Interest is charged on the total amount of money borrowed.
• Loans have a longer term, usually counting to years.

On the other hand, credit is a more flexible form of finance. It allows you to access the amount of money loaned, according to your needs at any given time. The main inclusions of a credit that differentiates it from a loan are:

• Interest is usually higher than on a loan.
• Interest is only paid on the amount used. But there may be a minimum fee payable on the undrawn balance.
• As the money is returned, more will become available. Provided that the limit is not exceeded.
• Unlike the loan, the credit is usually renewed each year. It allows the customer to continue to use this credit facility whenever necessary.

F.I.V.E. Specialized benefits when you outsource credit

Credit control is not just for big businesses. 

UK SMEs are owed an estimated £2.3bn in outstanding payments . That’s a statistic that underlines the problem faced by small business owners. Without the right debt management processes, it’s very easy for late payment to start having a negative impact on trading.

This is where credit control comes in. It exists to chase up outstanding debts, agree on credit terms, and make sure your customers can pay in the first place.

It takes 53-55 days is the average time larger businesses wait for payment. Meanwhile, for small and medium-sized enterprises some 20% of wait more than 60 days to get paid.

Not understanding the importance of it may leave you struggling financially. It is not just outsourcing advantages we want you to experience. But we want to give you specific benefits for your credit management outsourcing.

Reduced debtor days

Enhancing your credit management can translate to a reduction in debtor days and improved cash flow. This is essential for funding day-to-day activity and business growth.

Less borrowing required

With invoices being paid faster, cash flow will be more stable and the need for funding to bridge cash flow gaps reduced, saving you money on borrowing fees.

Better position

With improved credit control more working capital will be available, allowing you to confidently take on new orders and capitalize on new opportunities that could put you ahead of the competition.

More buying power

Getting paid faster means you can pay suppliers sooner, which could put you in a better position to negotiate early settlement discounts and save your business money.

Better credit rating

Sometimes when a business is paid late it can fall behind on its own payments, negatively impacting its credit score. When paid on time a business can make payments, improve its credit rating and therefore increase its chances of securing funding in the future.

Your customers are the center to credit outsourcing

Hiring a company to outsource credit control is now extremely popular. Especially those who need to know when they are getting paid and need a consistent cash flow.

Outsourcing credit control will free up time, improve your cash flow, and is a cost-effective solution in comparison to hiring a new member of staff. When you use an external company to outsource credit control to, it’s like having your own credit controller in-house, but without the desk space being taken up. Depending on how many customers and invoices you send per month, you may only require just a few hours per week to keep your cash flow on track.

So what are you waiting for? Contact us today and we’ll give you a free quote for when you decide to partner with us.

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