1. Sales Are Being Made on Easy Credit
You are giving credit to almost every customer just to increase sales. There is no limit on amount or number of days. Customers happily take goods but pay slowly. Your sales number looks big, but your bank balance stays small.
2. Wrong Customers Are Being Added
To grow fast, you sell to customers who are weak in payment or have no good track record. You do not check their background or past payment habits. Some of them delay for months, and some never pay. Bad customers turn your sales into bad debts.
3. Collection Is Weaker Than Selling
Your team works hard to sell, but nobody works hard to collect. There is no fixed person, no reminder system, and no regular follow-up. Old dues keep getting older, and new dues keep getting added. Debtors grow faster than your recovery.
4. Your Own Payments Are Faster Than Customer Payments
You pay your suppliers, staff, rent, and taxes on time, but customers pay you late. This creates a gap between cash going out and cash coming in. You then borrow money or delay your own payments to manage. This gap is the main reason for the cash crisis.
5. Customers Are Using You as Free Bank Finance
When you do not ask for payment strictly, customers use your money for their own business. They feel no pressure because there is no interest, penalty, or discount policy. You are paying the cost of your own capital and also losing cash. In this way, you finance your customers while your own business suffers.
Simple Rule: If debtors grow faster than collection, sales will create problems, not profit.
CA Sukhvinder Singh
Business Coach
Growth Mindset Coach
Mob- 9811518762