Credit Control and Credit management
Effective credit management prevents late payment or non-payment for the services provided by your business.
With more than half of businesses not surviving the first five years of trading, a general lack of funding, the increasing difficulty of bank lending … this all makes credit control and credit management more important than ever before.
If this is not enough to convince you, the top reason given for ceased trading is the cost of running a business and bad credit management practices.
Credit Control Procedures
It is essential before you start to sell the product / service that credit control procedures are put in place, not only to be more organised but to also maintain good customer relations and increase the business revenue.
Good credit management practices:
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- Accurate invoicing – One of the most common problems with credit management is the failure of the supplier (you!) to accurately understand the legal entity you are entering into a contract with (your customer). Great care should be taken to ensure you understand exactly ‘who’ you are dealing with, being clear on their specific legal name and then quoting this accurately on your invoice. Often, larger businesses may have multiple company entities (multiple Limited businesses, trading names, parent companies, group structures, etc) and it’s essential to get clarity on this from the start of the contract to prevent non-payment issues later.
- Payment terms – Make the client aware of the payment terms and follow them tightly. Additionally, be aware that if they issue a purchase order, this may prescribe alternative payment terms to your own and your acceptance of this purchase order is also acceptance of their payment terms – beware!
- Keep an audit trail – Software / bookkeeping services will enable you to keep an audit trail of all transactions and processes, but also keep notes of all correspondence and conversations as a record to be able to refer back to later.
- Non-payment action – It is vital to introduce non-payment procedures, this can be anything from phone calls, reminder letters and suspension of service.
- Reports – Overdue customers / suppliers / KPI reports are very useful to keep track of everything outstanding and the collection figures from your credit controllers.
- Credit Limit – Introduce credit limits for your larger clients, this then enables you to receive regular payments and reduces the risk of non-payment or credit abuse.
Non-payment equals a 100% loss to the business! Credit control helps you to manage the risk of offering credit – seek specialist solutions and software that assists the process.
Simple ‘Yorkshire-style’ advice on credit control from Yorkshire Powerhouse
Now you’ve read our article on Credit Control – have you any more questions?
Here at Yorkshire Powerhouse, we’re happy to help as much as possible – is there anything else we can do to help you, do you have any further questions or can we help introduce you to an expert – please let us know:
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