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The secret to effective credit control lies squarely in the proverbial dotting of i’s and crossing of t’s. In fact, there’s a fine line between credit control and the law in that they both require a keen understanding of processes, fine print, and risk assessment.
The systems that you have in place will dictate, to a large extent, the health of your business. We know that cash flow is the heartbeat of a company and when this slows to a trickle it has far-reaching effects - none of them good.
We’d like to highlight the four main areas that a business should focus on to maintain the most effective credit control systems. As you read, measure these ideals against your processes and see how they stack up.
The secret to a smart credit control system starts long before any credit is offered or any amounts become due. The success of the system depends on the diligence of your accounts team.
We’ve delved into the value of an effective credit control policy in previous articles, but as this is where the efficiency of your system starts, it’s certainly worth recapping the main points.
When determining the terms of a good credit control policy for your business, you will need to assess how much risk you are willing to carry. Generally speaking, lower profit margins on slower-moving goods require a more vigorous risk assessment policy in place in comparison to those with higher margins. In addition, companies selling uncommon goods or services are in a better position to enforce stricter terms of trade.
Finding the balance between encouraging the right customers to make use of a credit line and enjoy a long-term relationship with you, and getting paid on time, is indeed tricky.
Does your company enforce the following procedures?
Have a clearly defined credit control policy that all staff members are familiar with, and that they enforce without fail.
Include a minimum requirement for the extension of credit.
Include a minimum order amount to make it worth your while.
Set an initial credit limit until you know how the customer conducts their account.
Ensure that all application forms are legally sound, being signed by the right person, dated, and available to all parties.
Establish upfront who is responsible for payments and how and when these will run. Be sure to have their direct contact information.
Ensure that your terms and conditions are clear and understandable, and that each customer has a copy for their own records.
These should clearly state the penalties for late payments.
They should also outline the processes for dispute and recovery.
Confirm all client details carefully and make sure everything is in writing. Verbal agreements are easily forgotten when money is at stake.
Effective credit control leans heavily on the accuracy and timing of your invoices. How many times have you had a client stall payment because you have omitted a piece of information that they deem vital? Never give your customers a reason to not pay. To that end, run through this checklist and confirm that you have this in place.
Ensure that your invoice template includes the following:
Your bank details in full
Full name, company name, and address of the recipient
Order number, description, and date effected
Cost breakdown including unit price, tax rate, and total due
Details of any discounts offered and their terms
Due date of payment
Payment terms and a link to your company terms and conditions
Be sure to send your invoice within 24 hours of the delivery of goods
Confirm that the products, delivery, and costing are correct and have been signed off
Send monthly statements with copies of invoices for reference
If an invoice is inaccurate, then you are creating a delay for your own payments. Automated credit control systems are more accurate than pulling information from an Excel spreadsheet and are well worth investing in.
If you’ve got a robust credit control policy in place and your team are sending out accurate invoices timeously then you’re probably enjoying a healthy cash flow. However, even the best-laid plans can be undermined by dishonest customers with money issues, or just a difficult economic climate. What happens next?
A firm collections policy is in order before problems arise and should include a category list of all customers splitting them by risk.
Follow up on high risk and high-value customers first.
Make contact within a week of the payment becoming due.
Inform customers that there are late payment charges as well as fees for returned debits or bounced checks.
Bigger accounts should be contacted prior to the payment due date to confirm they have everything they need to process your invoice.
Ensure that your accounts are accurate and up to date to avoid calling customers who have already paid.
If payments are not being made and all roads have been exhausted then seek help from your collections agency.
Walking the fine line between wanting customers to buy from you and deciding who is worth the risk can be a real head-scratcher. Time and experience will teach business owners what they need to know, but often these school fees are simply too high - especially now when business is tough.
That is why we have developed simplified yet incredibly effective systems that allow you to better manage your money and keep your customers happy. Automated, reliable, and tested processes like these are exactly what you need to take the uncertainty out of month-end payments.
Would you like to know more? Please feel free to contact our experienced team or request a demo to understand exactly what simplified credit control looks like for your business.