How Can You Improve Your Debt Management With Good Credit Control?

Getting paid on time means positive cash flow, which is the essence of a healthy business.


How do you go about setting up a proper credit control system?

Here are some tips to help you on your way.

If you had thought of having in place a proper system, then you’re quite right.

A proper system should be a high priority.

Six Tips

1. Set a credit limit for everyone you deal with.

2. Check the credit status of your customers regularly.

3. Issue invoices as soon as possible, and make it part of someone’s job to double check that all the details are correct - you don’t want to give your debtors an excuse to quibble.

4. Issue contracts if you can, which clearly state your terms of payment.

Failing this, agree them with the customer when you take the order; a written confirmation of the order stating terms is a good record.

In any case, state your payment terms on the invoice.

5. Check customer payments against invoices, and make sure that all discrepancies are fully investigated and dealt with.

6. Set up a procedure for chasing overdue accounts.

Decide that you will send a particular letter to chase the debt if it is unpaid after, say, 30 days.

A second letter after 45 days and so on.

Keep your records in such a way that these unpaid bills come to the surface at the relevant times.

A good credit control is important to manage customer purchases and debts.

Such credit control management includes everything from the sale, to the collection of the final payment.

A healthy cash flow is important to every business.

The Days Sales Outstanding figure will tell a business how many days on average it takes for a customer to pay their debt.

Credit Control Policy

If a Credit Policy has at it's heart sound decision making, Credit Control has 'control'.

This point is often overlooked by companies that push every sale and 'wait and hope' for debtors to pay invoices on time. The 'control' does not start with receiving a delivery note, an order, or whatever procedure is used to notify credit control of a customers purchase.

The control must start with a level of authorization/involvement in agreeing real-time credit limits and periods, such as sales staff, sales and credit control, controls.

The next stage of control is to raise an invoice a.s.a.p., and certainly within 72 hours.

The invoice payment is controlled by a visual time limit, say 30 days, and your credit policy (which the customer should have a copy of) sets out the conditions and penalties, in respect of every invoice raised.

Where possible, further control is established by calling the debtor after 48 hours to confirm that goods/service received, no problems exist, and invoice received and set up for payment.

Where payment has not been received, to a maximum of 72 hours overdue, a call, a visit, or letter (depending on industry and goods/service), is initiated to control and establish a new time-table for payment, say a further 48 hours. If after the extended period no payment has been received, further action needs to be taken immediately.

There is little point in saying "let's wait and see what happens", as nothing will happen.

Another visit, a telephone call, or a letter that escalates your urgency is required at this stage, to show the debtor that you still control the situation, if not the actual payment. You may suggest part payment now, the balance in 7, 10 days, or even take some goods back (this option is not used enough in my opinion).

If you have still not received the payment after one to one negotiation you have to accept you have a BAD DEBT.

If you are willing to ‘do what it takes’ to resolve the debt, you will usually be successful.

Only a very small percentage of debts that are sent to lawyers, or debt collection agents, actually end up in court.

What they do ‘quickly’ is find the debtor, make contact with the debtor, and agree an arrangement to pay the debt.

When dealing with the debtor they are ‘usually’ calm, professional and to a degree understanding.

Empathy is a very strong tool.

They can only do what you could do yourself.

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