The Importance of Establishing Effective Credit Control Policies in a Business
There are a number of credible sources that will all support the statement that one of the top reasons for a business failing is poor cash flow.
In a world that revolves around credit there will always be a late payment culture. When late payment creates a significant gap between a business receiving funds in and suppliers demanding payment, then cracks will appear and if it is not rectified the business will inevitably fail.
Establishing a credit policy and process even in a small business is vital. Establishing it early means it can grow with the business and become part of the businesses culture.
There is no need for it to be complicated, but it does need to be consistent and applied – so what are they key things you should do and why?
Effective Credit Control Policies
1: Use a new customer form (see the FREE template download link above!). This could incorporate the enquiry, but it is very important to know who your customer is. They need to be set up correctly, understanding what legal entity they are will help. It is important to know where to send the invoice, how do you contact them, are they VAT registered and more.
2: Have a set of terms and conditions that define what you will do/deliver, what they will pay, when they will pay and what happens in the event of a dispute and very importantly what remedy you will take if they do not pay. This must all be agreed before you do any work or deliver goods.
3: If you are going to offer credit terms, how much will you offer. What steps can you take to give comfort they will make payment. Monitor your customer payments, check invoices are received.
4: Set up a routine that checks who has paid and allocate the payments. Don’t ignore the smaller value invoices and understand where the risks to your business are.
5: Have an escalation process and implement it. Referring late payers to a third party does not automatically mean court action. In many cases, an agreed and correctly evidenced payment plan should define clear consequences in the event payments are not made as agreed.
It is important to understand that the above notes represent only the basic framework of a credit policy.
Having a solid set of credit management procedures will prevent a lot of debt issues but you need to follow them to the letter – if you’re struggling with credit control and debt collection then find a professional partner who can support your business.
Credit management guidance from Yorkshire Powerhouse
Have you any 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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