How to build a simple and effective credit control policy

13/04/2021

As all business owners know, a healthy cash flow impacts short and long term success. Nurturing good credit control practices within your business can help prevent late payments, and contribute towards a healthier cash flow.

Although there are many different credit management strategies that businesses may choose to use, a written credit policy should be the backbone of all of them. This will provide continuity and the best experience for your clients, as well as ensuring best practice is followed throughout all financial business interactions.

As a debt collection and credit control agency with vast experience of taking care of businesses’ sales ledgers and ensuring their customers pay within terms, we would like to share with you our best practice procedures for a great credit policy.

What is a credit control policy?

A credit policy is essentially a set of rules that dictate the procedures that staff should follow when trading on credit terms. It ensures a co-ordinated approach to credit control across the company and will be based on past experiences and best practice, so that it’s as relevant to your business as possible.

In truth, credit policies will vary considerably from business to business, ranging from a few small paragraphs to several pages that are aimed at either the credit control department or the whole business. The important thing is to get it right for your business.

What are the key benefits of a credit control policy?

A credit policy will ensure a consistent approach to credit management from every staff member and across each customer. It means that every customer will be offered the most appropriate credit terms and contacted at the right times. It also ensures the credit control team understands what action to take at different stages of the order-to-collections process, from when to call the customer to when to bring in external help.

This helps to increase efficiency within the department as staff can get on with their jobs rather than seeking the opinions and approval of other team members and managers. It also removes bias, brings continuity when new staff are recruited and forms a key part of the training collateral.

Some company policies can be regarded as rigid, inflexible structures, however credit policies can be much more fluid and evolve continuously according to new experiences, trends and industry developments. The end result will be creating a system that encourages customers to pay faster, and thereby improve your business’s cash flow.

In combating late payment, too often we see businesses react when it’s too late. By taking a more proactive approach you can put your business back in control.

How to write a simple, yet effective credit control policy

Here are just a few things to include and consider when writing your credit policy:

Roles and responsibilities

A brief description of the delegation of responsibilities for the department / role, including authorisation and decision makers. Ensuring nothing is left to assumption is good practice here.

Communication and procedures 

The backbone of your credit procedure should be the basic dos and don’ts of your policy. Writing this down as an official policy will minimise error from staff conducting and nurturing credit arrangements.

It should outline the different avenues of communication to be used between the business and customers and at which points during the credit cycle.

Choose a reliable credit information partner

Finding an accurate provider that will be able to offer the insight and intelligence you need to make smarter credit decisions will benefit your process by speeding it up and enabling you to make confident choices. Consider where to buy credit reports on new and existing customers and ensure you are benefiting from the best deal from that provider.

Existing customers

Re-evaluating the credit histories of existing customers frequently will ensure you keep on top of any potential problems, as their own financial position could change at any point. Here are 21 warning signs that you should be aware of.

Bear the business’s goals in mind

Be aware of your company’s cash flow requirements, bearing in mind that these will fluctuate according to the general economic situation and financial requirements of the business. Decisions made by the credit control function, such as the length of credit terms offered to customers, should be based on the overall business’s cash flow requirements.

Terms and Conditions

These are vital when protecting your business as, inevitably, things can go wrong. Including your terms and conditions on all sale documents, with a statement requiring a signature, will ensure you are not caught out. If you are not sure about what to include in your terms and conditions, our post here offers more in-depth tips.

Invoicing 

Ensure all invoices follow a template, include all necessary information and are issued within 24 hours, as this will make excuses more difficult to make. If you’re stuck on how to produce a clear template for invoicing, read our guide here.

Escalating to collections

Even with all your best efforts in managing and upholding a rigid credit policy, there will be occasions where some customers will still fail to pay on time.

Knowing there is a plan in place for such eventualities will take the stress off staff by allowing them to follow a strict process. This should include how soon to contact the customer and by what medium, what to do if those efforts don’t work and who to escalate things to internally. It should also explain at what point the invoice should be outsourced to the company’s debt collection partner, bringing added expertise to the collections process whilst giving the team the time to focus on newer invoices.

If your business doesn’t have a debt collection partner currently, or you’d like to improve results, here’s how Hilton-Baird can work as an extension of your credit control team.

Evaluating

A great credit control policy would not be complete without regular evaluation, ensuring the desired actions are being upheld and are effective in preventing the burden of late payment to the business.

If your credit control performance still isn’t delivering the results you’d expect, it can be useful either to ask a specialist to review your setup, or consider outsourcing all or part of your credit control function.

We hope this information will help you to build a simple yet effective credit control policy that can help you navigate the problem of late payment and ensure cash flow does not cause a problem when it comes to business growth.

If you would like further advice on how to get paid sooner, or perhaps you have decided outsourcing would be more suitable for your business, our team of experts would be pleased to help. You can reach them on 0800 9774848 or request a call back using the form below:

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