Improving Credit Control

Tips To Help Improve Collections

Business success and sometimes its very survival can depend on maintaining a strong working capital position. Cash tied up with customers who don’t pay on time is an additional cost on your business both in terms of financing and the additional in-house overhead of the resources involved in various debt collection activities as well as the cost of bad debt write off’s.

Reviewing your credit control processes and implementing improvements can ultimately lead to

• Improved cash position
• Improved customer satisfaction
• Improved employee satisfaction
• Improved profitability

So where do we start?

1. Establish your credit policy - Establishing the company’s credit terms and communicating those terms clearly to both customers and employees is critical to successful collections.

2. Control the establishment of new credit accounts: New customer accounts are the lifeblood of all businesses however; careful monitoring of the credit history of prospective customers prior to providing credit facilities is a discipline which should be enforced within your business. Trade/Credit references should be sought and/or a credit rating report could be bought from Credit Rating Agency. A report from a reputable Credit Rating Agency may prove to be a worthwhile investment. Sometimes it may be better to be sorry for not making the sale than making it! If your business is selling products and/or services that can be leased/financed then establishing a relationship with a leasing company/bank where customers can be offered an opportunity to finance their purchase may be an effective way of reducing credit risk and shortening the payment cycle.

3. Set appropriate Credit Limits and payment terms – There is no right answer here. The level of credit you are prepared to offer your customers in terms of both value and payment terms will depend on your assessment of the risk involved. Credit limits should be reviewed regularly as your relationship with your customer grows over time however; you need to monitor economic conditions and any slippages in payment performance.

4. Review your sales and billing process: Your collection process starts effectively with the taking of sales orders and the processing of sales invoices. Your sale team are also part of your collections team. Getting your invoicing right first time can have a dramatic impact on collections and customer satisfaction. Timely billing is also a critical component of an effective credit control strategy.

5. Monitor overdue accounts closely : Where possible automate the production of overdue reminders to customers. Follow up with regular phone calls and record notes on interactions with customers. Effective debt collection requires that reasons for delayed payment of invoices are highlighted as early possible and resolved with a minimum delay. Essentially the maxim here is “follow up”, “follow up”, “follow up”, the longer invoice queries/disputes remain unresolved the more difficult collection becomes and the more likely your customer is to become unhappy.

6. Know your customer’s payment processes: Try to establish good relationships with those people within your customer’s organisation who can help get your payment processed. By understanding your customers payment cycle and the key people in the payment process you can help speed up your own payments. Recording this key information on a customer basis will help facilitate sharing of the workload and continuity in times of absence due to sickness, holidays etc

7. Take action when it is necessary: Communicate clearly to your customer when actions may be necessary to secure settlement of an outstanding balance. Do not threaten to take a course of action which you are not prepared to take. Escalating your efforts to another person within your customer’s organisation or enlisting the help of another employee within your own may be all that is required to sort an impasse.

Author : John Hickey ACMA, CPA, BBS

John who if the founder of Koncept Business Solutions is a Chartered Management Accountant with over 20 years exerience across industries ranging from Food Processing, Manufacturing, Wholesaling, Service and Information Technnology.
Visit us at http://www.konceptbiz.net/