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/

Strategies For The Downturn

With the recent dowturn in the Irish economy businesses will need to consider strategies to cope with the business realities of the current economic conditions.

To survive and be successfull in a tougher commercial environment businesss will need to focus on strategies which

• Manage Cash Resources
• Enhance Asset Utilisation
• Reduce Business Costs
• Improve Efficiencies
• Protect and Enhance Customer Base

Manage Cash Resources

With higher interest rates and tightening credit availability the philosophy of "CASH is KING" becomes even more relevant. Careful management of your cash position will always serve your business well in any economic climate but in an economic downturn it is even more critical. Actions to take

• Forecast your monthly cash requirements matching monthly outgoings on operational and capital spending with forecasted cash receipts. Proactive management of your cash position will enable the business to deal more effectively with customers, suppliers and banks. Retaining the confidence of all stakeholders in the business (owners, employess, customers, supplers etc) during difficult trading conditions may be critical to the survival of your business.
• Timely collection of your outstanding customer debts is a major component in your cash management strategy. Monitor your debtors aging profiles carefully, reinforce your credit terms with your customers and ensure that debt collection tasks assigned to employees within the company are followed up regularly.
• Where necessary re-negotiate credit terms with suppliers. Maintaining the confidence of your supplier in a downturn may be key to protecting your supply channel.

Enhance Asset Utilisation

Focus on reducing the working capital requirements of your business. Actions to take

• Reduce slow moving stock and obsolete stock to a minimum.
• Manage your supply chain to improve inventory turnover as much as possible. Reducing the lead times of your supplers or setting more realistic expectations with your customers may lead to lower stock levels which will mean you have less money tied up in stock, less risk of stock loss , damage and stock obsolescence.
• Review your sales profiles - know your higher volume/margin items and reduce unnecessary non standard items from your product portfolio.
• Maximise your credit terms with your suppliers. Reviewing the number number of suppliers from whom you source product may lead to consolidation and opportunities to improve trading terms and lead times with your primary suppliers.

Reduce Business Costs

Management of business costs in any trading environment is always important however, in a downturn it becomes even more difficult to pass on cost increases to your customer. Companies need to review their costs carefully before implementing cost reduction strategies. Knee-jerk slash and burn strategies may achieve short-term cost reductions but may have longer term negative impacts on the growth potential of your business. Actions to take

• Ensure your business system / accounting package enables you to categorise your expenses and has good visibity in terms period comparisions (year on year, month to month etc) and ability to drill down in sufficient detail to understand the source of the expense.
• Identify expenses which are most likely to yield higher savings and determine whether these expenses can be reduced or eliminated without negative impact on the business.
• Source your suppliers carefully and make price comparisons with competitor suppliers. Better deals may be available.
• Plan the introduction of cost savings strategies carefully and understand likely impacts on employees, customers and suppliers.

Improve Efficiencies

Businesses need to review their systems and processes to ensure that products and services are delivered as effectively and efficiently to the customer as possible. Actions to take

• Review the activites that are undertaken within the company.
• Question, Question ,Question. Question why things are done in a certain manner. Historical rationale for doing things that way may not relevant now.
• Identify any duplication of activities. Duplication leads to additional costs and opportunities for errors.
• Identify whether the volume of transactions generated can be reduced (invoices, credit notes, supplier/customer returns etc)
• Examine whether your system/processes facilitate getting things right "First Time". Correcting/fixing errors can be a very costly expense for a business and by it's very nature is something which does not contribute any additional value to your customer.

Protect and Enhance your Customer Base

Without customers your business does not exist. It costs a lot more to win new customers than to retain your existing customers. Actions to take

• Ensure that your business system allows you to analyse your customer sales easily and informatively.
• Understand your customer and product profitability mix well.
• Have a process which facilitates a view of customer interactions across the company. The business needs visiblity of what's happening at various levels from sales, quotations, back orders, deliveries, credit control, customer service etc. Custmers get a much better impression of a business where the "right hand knows what left hand is doing"
• Make it easier for your customers to do business with you and try to improve their experience of interacting with your employees across the company.

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/

Does your software add up

Successful businesses continually review their processes and systems to ensure that they are efficient and profit enhancing.

Effective software solutions must nowadays enable businesses to satisfy or exceed customer expectations by

• Making customer interaction as seamless as possible with good visibility of customer contact points
• Allowing real-time visibility of critical processes.
• Removing duplication of data entry and non value activities
• Providing visibility key business measures such as profit margins, stock, credit control,, costs etc
• Allow full integration of business processes across the company

Key Questions to ask of your software system

• Do I have easy access to up-to-date key information on my business?
• Do I have sufficient visibility of my sales pipeline, back orders and stock?
• Does my system remove the need to have multiple applications and spreadsheets?
• Does my system remove the need for unnecessary duplication of data recording and entry
• Do I have immediate visibility of interactions with contacts, customers and suppliers?
• Does the system have imbedded warnings to prevent costly mistakes?
• Does my system enable tight credit control, recording of debt collection activities, assignment of tasks and levying of overdue interest charges ?
• Does my system have integration with electronic data capture devices such as PDA’s, tablet pcs, weighbridges, point of sale etc?
• Does my system have traceability fields to cater for requirements such as in the food industry?