June’s Frequent Credit Management Questions
June’s Frequent Credit Management Questions
What are pre-action protocols?
Pre-action protocols refer to the tasks you must carry out prior to beginning court action. Courts want you to evidence that you have made every attempt to resolve the issue prior to commencing court action; without this there may be a penalties. Therefore, you must ensure that you record all collection activity, including information such as: dates, names of those you have spoken to/ written and/ or emailed. The bare minimum you must carry out to comply with pre-action protocols, is to send a well worded and detailed final demand letter, informing your customer of impending legal action if resolution is not found.
What are the most effective tools of credit control?
There are no tools of credit control that are more effective than others, rather you will begin to understand which tools are more successful in your chasing with particular customers than others. These tools will include:
- Invoices
- Phone calls
- Letters
- Statements
- Credit sanctions
Our “Improving Collection Performance” training course can guide you through using each of these tools and how to apply them to your business; click here to view our upcoming training dates.
Can you give me some tips on how to set credit limits for customers?
Credit limits are an effective way of reducing the risk your business is exposed to when offering credit to customers. Your credit limits should take into account how much credit your business can realistically offer without negatively impacting your cash flow (taking into account your payment terms also). You should also ensure that your customer’s credit risk is checked prior to setting any credit limits; from this you may decide that you are able to offer more or less credit than anticipated, or even decide not to offer credit at all if your customer’s credit risk is poor. Once credit limits are set, ensure you have a robust collection strategy in place, and don’t allow your customer to go over their limit, this will prove to be great leverage in encouraging payment.
What is management reporting?
Credit management reporting will help you in tracking how effective your credit management function is and also identify any under performing areas. The areas you should measure: collection performance, reporting on key measurements to monitor trends and it can be used to set targets based on current performance. Many of my clients use different measurements in their management reporting, some choosing to monitor debtor days (the average number of days between invoice and payment), others monitor collected money in, as well as the percentage days overdue (i.e. 1-30 days, 21-60 etc.).
