To often organisations have no formal procedures in place surrounding credit control. Without a structured approach there is a greater risk of the accounts team working inefficiently, getting paid late by customer, damaging customer relationships and potentially bad debts.
Implementing a company wide Credit Control Policy will help avoid these issues. Such a policy is really just a set of rules that have been agreed and should be applied by everyone in the organisation.
A credit control policy should start with when an organisation is looking to first take on a new customer through to what action to take should they fail to pay their invoices on time. Following these rules will help businesses avoid potentially costly issues with their customers by taking proactive action and hopefully avoiding the problems in the first instance.
What should you think about when putting together a credit control policy for your company ?
Of course credit control policies will differ from business to business and industry to industry, however, the following areas should be considered:
1. Roles and responsibilities
By setting out who in the organisation is responsible for the different aspects of the credit control process will avoid working inefficiencies and will avoid individuals making decisions and assumptions for themselves.
It is also important to identify situations where senior authorisation maybe required and from whom.
2. Find a Credit Agency
There are a number of credit agencies such as Creditsafe, Experian and Dunn and Bradstreet who have already done some of the hard work for you. Whilst there is a subscription cost involved in utilising the services of one of these organisations they will assist in evaluating your customers’ credit worthiness.
It is also possible to set up alerts on your customers so that any adverse credit information is brought to your attention without delay allowing you to reconsider the credit terms offered to that customer.
3. Set out an on-boarding procedure
Clearly define what steps should be taken when bringing a new customer on board. This should include a detailed customer identification questionnaire. If you have signed up to a credit agency ensure not only are credit reports obtained but they are fully evaluated.
4. Define ongoing procedures
- Agree on when invoices should be sent out to customers. For example, within 24 hours of when the work has been completed.
- Establish a timeline of when reminders should be sent to customers and in what form these should be.
- There should also be clear procedures to be followed should customers exceed their credit limits or fall behind with payments.
Having a credit control policy is of little use if it is not followed. The policy should be clearly communicated with all staff members involved in that part of the business. Regular evaluations should be carried out to ensure that what is happening is what is supposed to be happening.
We have helped many clients design and implement effective credit control policies who have subsequently seen a marked improvement in the time it takes them to get paid and also a reduced risk of bad debts. If you would like any assistance in putting together a new credit control policy please do not hesitate to contact us.