How can you enhance your business’ credit management function?
Having an effective credit management function is vital to any business in maintaining and improving cash flow, as well as reducing a business’ risk to bad debt. There are many different elements to credit management that will all play a role in how effective it is, here are a few tips on how to improve some aspects:
Ensure departments work together
Your business’ credit management procedures should be known by every department in the business. Sales and credit control in particular should work closely together as these are the two-main customer facing roles.
Terms and conditions
Your terms and conditions need to be incorporated into your on-boarding procedures; ensuring that your T&Cs have been made known to your customer (attaching them to an email and hoping your customer clicks on them won’t suffice), and that you can demonstrate that your customer has accepted them. All is not lost if you reach the decision to take legal action against a customer and you don’t have signed terms and conditions, you can also use acceptance by conduct and verbal acceptance. That being said I strongly recommend that you aim for written acceptance where possible as this is obviously the easiest to demonstrate to the courts.
Review wording in chaser letters/ emails
All chaser letters and emails should indicate that they require a response. Many times upon reviewing client letters and/or emails they state ‘if you have already paid please ignore this letter’, this should never be the case, if you have sent them a chaser it means that their payment is still showing as outstanding at your end and you need to investigate why that is. This should instead say ‘thank you if you have already sent payment to us, please contact us with details of your payment’.
Take a look at our collection strategy toolkit details of our collection letter factsheets and templates.
Measure disputes
Disputed invoices will mean delays in payment and having multiple disputed invoices will have a significant impact on your business’ cash flow. Invoice disputes may be a tactic used by a customer to delay payment, however it may indicate an issue on your end regarding your order to cash process that needs to be addressed to avoid further disputes. Assign reason codes for disputes so that they can be appropriately measured so that issues can be quickly identified. I also suggest measuring how long it takes to resolve disputes.
Our consultancy service can carry out a full review of your credit management function, make recommendations for improvement, and help you to implement it into your business; take a look at what we can offer your business.
