Having an effective credit control is crucial for maintaining a healthy cash flow and minimising bad debt within a business. When it comes to credit control “Proactive rather than Reactive” is the name of the game and below I share with you some of the best tactics and recommended processes to ensure effective credit control in your business:
Establish a clear and well-defined credit policy that outlines the terms and conditions of credit sales. This policy should include credit limits, payment terms, late payment penalties, and the process for credit applications.
Conduct a thorough creditworthiness assessment of potential customers before offering credit. This can involve checking their credit history, financial statements, and contacting trade references.
Set appropriate credit limits for each customer based on their financial capacity and payment history. Regularly review and update these limits as the customer's circumstances change.
Send out invoices promptly after the goods or services have been delivered. Clearly state the payment due date, payment methods, and any applicable discounts for early payments.
Monitor accounts receivable regularly and follow up on overdue payments promptly. This can involve sending reminders, making phone calls, or using automated systems to notify customers of their outstanding balance.
Encourage early payment by offering incentives such as discounts for early settlement or providing credit terms that reward prompt payment.
Maintain open and effective communication with customers regarding their outstanding balances. This can help identify any potential payment issues early on and allow for mutually beneficial solutions.
Designate a dedicated credit control team or individual responsible for managing credit accounts, handling collections, and resolving payment issues.
Develop a clear debt collection policy that outlines the steps to be taken when an account becomes seriously overdue. This policy should include escalating actions such as issuing formal demand letters or involving debt collection agencies if necessary.
Generate regular reports on accounts receivable, overdue payments, and bad debt levels. Analyse this data to identify trends and areas for improvement in the credit control process.
Ensure that staff involved in the credit control process receive appropriate training on credit management, customer communication, and debt collection techniques.
Leverage credit management software and accounting systems to automate processes, track customer payment histories, and streamline credit control operations.
Building strong relationships with customers can foster trust and encourage timely payments.
By implementing these tactics and processes, businesses can significantly improve their credit control, reduce bad debt, and maintain a healthy financial position. It’s essential to be proactive and consistent in credit management to ensure the overall stability and success of the business.
If you are interested in outsourcing your accounts receivable or credit control feel free to contact me at firstname.lastname@example.org
Laura Dunne, Credit Manager in Solve Outsource