The four pillars of successful credit management
20/08/2018
Trading on credit terms can be challenging for businesses of any size. If a customer pays late – or not at all – your cash flow can be stretched and put your business at risk.
From our vast experience as an outsourced credit control and debt collection agency, we believe there are four pillars of credit management which are critical to a healthy credit management function.
Are your pillars firmly in place? Or are there cracks that need to be addressed?
People
Do you know exactly who it is you’re offering credit to and how likely they are to pay?
Without this information you could be putting your business at risk of late or non-payment.
Account opening forms, credit reports and online searches can all reveal important information which will help you to decide if the person you are essentially lending to is a risk.
You can then choose the best course of action to proceed with the sale and whether or not full or partial payment upfront is required.
Whilst these checks are essential for every new customer, do not forget to continue to check the creditworthiness of your customers throughout your relationship as circumstances are always changing.
How well do you know your customers? Take a look at this infographic to find out.
Processes
In order to maintain a coordinated and professional credit control procedure you need to have a clear and effective day-by-day strategy for those responsible to follow from the moment an order is placed.
Stages can including invoicing right away and courtesy calls or letters that politely, but firmly, remind the customer of their obligation to pay you. Should the invoice not be paid after a certain time, it may be beneficial to pass the debt over to a specialist commercial debt collection agency.
Ensuring that the necessary training is provided and that all stages are adequately completed and meticulously stuck to will show your customers that you take payment seriously and improve your chances of being paid on time – both now and in the future.
Plus, in the event that an invoice remains unpaid you will know that you did all that you can to secure payment before considering outsourcing its collection.
For more tips on how to build an effective credit control timeline watch this video.
Penalties
Whilst the aim is of course to get your customer to make payment within the agreed terms, it’s also important to plan ahead and think about the penalties you can use should this not happen.
In the event a customer fails to pay there are a number of tactics you could use to essentially compensate you, for instance charging late payment interest, withholding services or enforcing a personal guarantee.
Whatever penalties your business decides to use it’s vital that these are clearly explained from the outset in your terms and conditions.
This ensures that your customer knows the consequences of delaying payment and can sometimes be all that’s needed to encourage prompt payment.
This guide considers what to do when an invoice exceeds terms.
Professional help
There will be times when you’ve exhausted all of your in-house efforts trying to recover a debt, yet it still remains unpaid.
When this happens it’s vital that you make the most of all the resources at your disposal.
Specialist commercial debt collection agencies excel at the recovery of particularly outstanding debts, dedicating the time and attention to each individual debtor that you may no longer be able to afford.
Statistics show that as debts grow older they become more difficult to collect – not to mention the impact it can have on the rest of the ledger – so it’s important that this help is sought as soon as possible.
By having an ongoing relationship with a debt collection agency you can streamline this process so that any invoice that reaches a certain age are passed over, leaving you more time to focus on newer invoices on your sales ledger.
This blog post looks at when you should consider using a debt collection agency.
To see how we could help your business with its debt collection needs contact us on 0800 9774848 or request a call back.
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