The importance of credit control
Sadly, no matter how good your product or service is and no matter how adept you are at winning new customers and increasing sales, unless you can convert those sales into cash reasonably quickly, you won’t remain in business for long.
The good news is that you don’t need to be a passive victim of this so-called “late payment culture”. If your business struggles with poor-paying customers, then by setting up a simple credit control system and injecting a little more discipline into the process of granting credit and recovering cash, your customers will start paying you more promptly and you will reduce the number of debts that you are forced to write off.
This paper is designed to help you to set up an entire credit control system from scratch. If you already have a system, you may still want to work through the whole module for ideas on how to improve it.
The module deals with the five key elements of an effective credit control system:
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Evaluating the creditworthiness of new (and existing) customers, to ensure that the decision to grant them credit is based on a reasoned assessment of their ability to pay.
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Providing and agreeing standard terms and conditions of trade to ensure that credit customers understand their obligations, and to provide evidence for legal and court proceedings if necessary.
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Setting up a system of invoices, reminders and statements to press for payment in a professional but forceful way.
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Setting up a system for analysing outstanding debts and identifying those that require action.
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When all your efforts have failed, using third party legal and debt recovery services to assist you in getting paid.
1. Evaluate customer creditworthiness
It seems obvious that you should only grant credit to customers who you are satisfied can and will pay for their goods within an agreed time frame. However, for a variety of reasons, many businesses do not perform credit evaluations. These reasons include:
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an unwillingness to lose a sale
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pressure from sales staff (especially those on commission) not to prejudice the sale in any way
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the feeling that prospective customers will be annoyed or embarrassed by a credit evaluation process
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over-reliance on “gut feel” and instinct.
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