The Importance of Credit Management
The sales function of a business is often seen as one of the most important aspects of a business, and whilst it is vital, many companies I have worked with have focused so much energy on sales that credit management processes have fallen behind.
For those businesses experiencing rapid growth, poor credit management can have a seriously detrimental effect on cash flow. This is a trap that many businesses fall into, and can often lead to dire consequences.
Effective credit management can help to avoid falling into this trap. No matter whether you are a one man band, or a business with a turnover in the millions, credit management should always be given priority. Simple checks can sometimes save you from making big mistakes when it comes to granting credit. An argument can be made for these checks drastically reducing the time needed for effective credit control, as well as reducing the risk of bad debt to your business.
Below are listed a few Golden Rules for effective Credit management:
- Credit management starts before the sale! Credit Checks are essential to risk assessment. They can save your company from taking on excess risk when granting credit, subsequently drastically reducing your risk to bad debt. Credit risk, however, is not set indefinitely, therefore your customers should also be put onto ongoing monitoring so that you are alerted when there is a change in your customer’s circumstances, good or bad.
- Terms & Conditions – These are vital. Most T&C’s are accepted by conduct, which leads to the ‘battle of the forms’. Whichever company’s terms were the last to be received by the other party prior to the contract being performed are those that apply. Signed agreements are always preferable, as there should be no confusion as to what terms have been accepted. If you do have to accept your customers Terms & Conditions, make sure you review them fully, be aware of your contractual obligations as well as liabilities in addition to payment terms. If you are unhappy with any clauses, don’t be afraid negotiate with your customer.
- Proactive chasing – Let your customers know you are hot on their trail. Being proactive and chasing before the invoice is due means that any issues come to light quicker, and you can resolve them before they delay the payment. You should try to conduct the call as a ‘customer service’, rather than a collection call.
- Close the Call – When carrying out telephone collections, always gain commitment at the end of the call, even if it is only a date to call back. You must always ensure you collect as much information as possible; names, follow up dates and firm commitments. Always follow-up as promised, this will help educate your customers that they have little or no ‘wiggle room’ and will find it easier just to pay.
- Queries – Queries can be a nightmare when it comes to confirming payment. If you get a query, log it by date, reason, resolver. Measuring reason codes can alert you to under-performing arrears in your business process that need to be fixed. Measure time taken to resolve disputes and look to improve on them. This will help to reduce delays in payment and improve customer satisfaction.
- Fledgling companies tend to overlook the importance of credit management, and this habit can stay with the company as it moves ahead. Make sure that this doesn’t apply to you as nothing is more likely to ruin a promising company than poor cash flow.
For more details on how we can help your business, from training current staff, to providing an outsourced credit control facility, please contact us today for more details on how we can help your business.
