A loose customer credit policy can quietly deplete a small business’s working capital before the management team notices the damage. In highly inflationary African markets, cash collected 45 or 60 days late loses real purchasing power, while record-high interest rates make borrowing to cover cash flow gaps extremely expensive.
For small and medium enterprises (SMEs) in Nigeria, where the Central Bank’s monetary policy rate exceeds 26%, carrying unpaid customer debt is a direct drag on profitability. To protect cash flow, African business owners must review customer credit policy quarter by quarter to ensure their credit terms match current market realities.
Analyze payment performance and calculate credit metrics
A quarterly review begins with an audit of your current accounts receivable aging report. Identify which customers consistently push past their agreed payment terms and segment them by risk level.
Calculate your Days Sales Outstanding (DSO) by dividing your average accounts receivable by total credit sales and multiplying by the number of days in the quarter. A rising DSO indicates that your capital is increasingly tied up in unpaid invoices.
For example, a Lagos-based corporate printing company might discover that while revenue grew by 15% last quarter, its DSO stretched from 32 days to 48 days. This delay forces the owner to rely on high-interest overdrafts to buy raw materials for new jobs.
Recalibrate credit terms for macroeconomic realities
Once you have identified the pressure points, adjust credit limits and payment windows to match the current economic climate. In volatile markets, tightening credit terms for new or slow-paying clients protects your margins.
SMEs should consider shortening standard payment windows from 45 days to 30 days, or offering a modest discount, such as 2% off the invoice total, for payments settled within 10 days. This incentivises prompt settlement and improves cash flow velocity.
Conversely, implement strict credit ceilings for high-risk accounts. If a customer repeatedly delays payment, suspend further credit sales and shift them to a cash-on-delivery basis until their outstanding balance is cleared.
Establish clear escalation triggers and automate collection
An updated policy is only useful if it is consistently enforced. Your quarterly review should refine the internal escalation steps when a customer misses a payment deadline.
Define exact triggers: send an automated reminder three days before the due date, place a phone call on day one of arrears, and suspend supply on day seven. This structured approach removes emotion from credit management.
Ensure your sales team is aligned with these changes. Sales commissions should ideally be tied to cash collected rather than sales booked, ensuring that staff do not chase volume at the expense of liquidity.
To safeguard your working capital this week, schedule a two-hour meeting with your finance lead to calculate your current DSO and draft revised credit terms for your five slowest-paying accounts.
