Credit Control

What is credit control?

 

Many businesses provide goods and services to customers without obtaining full payment at the time of sale, as for example retail businesses do.    In some cases, (e.g. Accounting practices) many clients have work completed for them and are then billed for this afterwards.  In other cases, some customers pay some fees up front (.e.g in the case of a tradesmen performing a service), and the balance is paid later.

 

Whenever goods or services are provided to customers and full payment is not received at the time of the transfer of the goods or supply of the service, the business providing such is actually providing credit to the customer. 

 

Who do you provide a line of credit to?

 

Controlling who you provide credit to and terms of credit are absolutely essential to collection fees owing to you and control your cash flow.

 

If a business is the type that it allows customers credit, whether in full or part, it must have a credit Control Policy.  This Credit control policy must include inter alia the following criteria;

  • Criteria for allowing credit.  (the rules);
  • Formal Application for credit by the customer;
  • Due Diligence procedures (does the customer have credit history problems?);
  • The rules regarding terms. (e.g. 50% when the service is procured and balance in 7 days of service, or supply of goods);
  • Security for Credit;
  • Acknowledgement of supply of goods and or services;
  • Invoicing procedures;
  • Statements of Account;
  • Collection procedures;

 

What is a creditor?

A creditor is a person or entity, which is legally owed a sum of money for supply of goods or services to the business.

 

How important is it to monitor my credit controller?

Monitoring your Credit controller is the absolutely essential, to ensure that;

  • You are paid for goods and services supplied;
  • You preserve business cash flow;
  • You limit the opportunity of fraud or other corrupt conduct between debtors and your credit controller.

 

Your credit controller must follow procedures outlined in your Credit Control policy.  When credit is approved, Senior personal should be provided with a report regarding this approval.

 

How does debt recovery work?

Debt recovery can be one of the most important components of any business.  Let’s face it, if you aren’t getting paid then why are you working?  Taking home a profit is not the only concern.  All businesses have expenses which need to be paid and without your customers paying their invoices you may yourself become a bad debtor.

 

One of the most important points to note when talking about debts is how much they are really worth to you and your business.  If you have a 10% profit margin and you decide to write off a $500 debt you have just written off $5,000 worth of sales.

 

If you have a bad debt then you need to resolve how far you are willing to go to recover that debt.  Most debts will be paid, but the deciding factor is how much effort you are willing to invest in the recovery of that debt.

 

You need to keep the customer close and speak to them regularly about the debt.  Don’t leave it to a debt collection person to give them a call once a month or to send a reminder letter. 

 

Only when you have exhausted all available options should you spend the money required to have a solicitor or debt collection agency do the work for you.

 

 

 

 

 

 

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