Effective Business Credit Management

Cash flow is crucial for any business, so companies must ensure that their customers pay on time. Debt recovery can be very time-consuming and energy-consuming and can still fail, regardless of the efforts. The solution to this can be adequately streamlined procedures to identify bad debts beforehand. Setting a practical and comprehensive credit control and management policy is crucial for getting paid on time.

Getting Started

The first thing to do is identify the requirements of your Credit Management Policy. It would help if you looked clearly at your business to identify the requirements. The first thing you must look at is your margin. A bigger margin allows for a more relaxed credit control policy. In comparison, businesses with a smaller gross profit margin might not be able to sustain a significant lousy debt, thus making the magnitude of gross profit margin a factor that cannot be neglected in your credit control strategy.

Consider the following tips for an effective credit management strategy. They will enable you to identify existing deficiencies and get a clearer picture with which you can reevaluate your company’s credit control policy and procedures.

Order Stage

1. Your company’s credit control policy must be clear to the sales staff.
2. Using a credit application form to keep everything organized makes bookkeeping less of a logistical nightmare.

Use the credit application to get the following details:

• The name of the company you are dealing with
• The name of your contact with the company
• Contact information such as phone numbers and email addresses
• VAT number of the company you are dealing with
• You should also inquire about the registration number if the company is a registered limited liability company.

1. Make credit checks for new customers, things such as bank references.
2. Get a personal guarantee from customers you think can lead to bad debt.
3. Analyze your customers, make criteria for credit recipients, and do not be afraid to decline credit.
4. Look at your margin and analyze the feasibility of credit insurance.
5. Set a limit for the credit a new customer can receive. Minimizes the risk of having a bad debt that can lead to a loss
6. In the case of regular customers, carry out credit checks regularly.
7. Document your Terms of Trade; this will help you in the recovery process and discourage bad debts.
8. Include a clause highlighting the fines a customer is subject to for late payment or providing a check that bounces.
9. Add a Retention of Title Clause in your Terms of Trade, and utilize the services of a solicitor who knows your business to do this for you.
10. Add a clause in your Terms of Trade that gives you the right to charge interest on late payments.
11. Include streamlined procedures for any disputes you might face regarding trademarking your credit terms, ideally setting a 30-day due date after the invoice date.
12. Sign an agreement marking the terms of payment.
13. Keep a record of the payment due dates.

Invoicing

Ensure that invoices have no errors. Be sure to include these details on the invoice:

1. Your business’ bank details (such as account number and title)
2. The terms and conditions that apply to the sale.
3. The name of the organization that has placed and will receive the order.
4. Payment address
5. Order Relevant Details include order description, order identification number, date of delivery, and the total costs and per-unit prices.
6. VAT Numbers and the rate of VAT applied.
7. The total amount that is due, along with the payment due date
8. Terms of payment
9. Discounts, if any

Ensure you issue the invoice as soon as possible, preferably no longer than 24 hours after the goods have been delivered or the services have been provided. Monthly statements from bookkeeping records allow you to know which invoices have been paid and identify and update the customers who have not paid their accounts.

Collection

1. Set discriminating criteria, dividing your business’s customers into bad, average, and good debtors. Each category may have a slightly different policy.
2. Contact the customers with significant debt value in the days preceding the due date; this will ensure that the invoice holder knows they must pay their dues.
3. Pursue payments that have passed their due dates and try to pressure the debtor to pay within one week of the due date.
4. Charge the customer a late payment fee or interest.
5. If all else fails, refer to a solicitor or debt collection agency.

Recovery

1. Stop supply or put current deals on hold if the payments have not been made for a particular time beyond the due date. This time can be different for each type of customer.
2. Consult and hire the services of a solicitor or debt collection agency.
3. Chase the debtor through court.

Management

1. Set goals for your credit control policy and keep track of them to measure progress and success
2. Ensure that your sales staff is trained in handling situations requiring questions, persuasion, and negotiation skills.

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