proceedings or accumulating and writing off
. But what is credit control and how to create a robust credit control system?
Credit control is a business process that promotes the selling of goods or services by extending credit to customers, covering such items as credit period, cash discounts, payment terms, credit standards and debt collection policy.
In general, credit control is a way to make it easier for your customers to purchase your company’s goods or services by offering attractive dummy, thus making the purchase itself attractive. Efficient credit control can result in increased sales – and increased profits – for your company.
But an important part of credit control is also determining to whom you can reliably be extending credit. Extending credit to customers with poor credit history can result in not being paid for the goods or services your company sells to them.
Credit management is the next step: it seeks to or non-payment through monitoring, reporting and record-keeping. The stronger your credit control is, the smoother your credit management process is likely to be.
Credit control processes help you ensure your company’s payment terms and policies are respected. This involves making those terms and actions clear to both your customers and your credit control team: explain how you’ll issue invoices, and what you’ll do if they go past due. Be sure to cover these steps:
Part of your credit control process should include when to hand off these issues to your credit management team, so they can speak with the customer and consider various ways to recover payments: offering various methods of payment, giving early-payment incentives or changing the credit terms. You have lots of options.
Your company should have a formal, written credit control procedure or policy – that is, an established or official way of doing something – to establish robust, repeatable, working credit control practices.
Putting these credit control procedures in writing can foster a culture of discipline within your company and ensure that everyone is following the same guidelines. These procedures should include clear rules on your credit terms, customer vetting and outreach, invoicing process, or late payment process.
Your credit control procedures and credit management rely on your entire company’s involvement and awareness, so think of communicating it widely and of training your sales team for example, not just the finance department.
Your credit control system should make it as easy as possible for your customers to pay you, so set up various payment methods.
Technology has made it possible for even small businesses to accept online payments without having to set up and incur the high costs of merchant banking accounts. Increasing the number of payment paths for your customers can streamline your credit control system and boost on-time payments.
As already mentioned above, make sure your credit management team monitors the creditworthiness of your customers regularly, not just the new ones. In sensitive economic times or in sensitive industries, quarterly reviews of customer P+Ls, balance sheets, cash flow and future billings will give you a real-time assessment of their on-going creditworthiness and alert you to potential problems before they become crises.
Sometimes, despite your best efforts at credit control, customers do not honor their obligations, and it’s up to you and your team to find a remedy.
Credit control letters can help you collect late payments, especially if you follow these tips:
A credit control letter should not contain idle threats. It’s part of your company’s overall credit control process, meant to ensure the customers fulfill their obligation for payment according to the terms you have both agreed upon.
Outsourced credit control can be the most protective and least expensive option for some companies. It can free up your time and staff to pursue opportunities, enter new markets and make competitive offers to your prospects while .
is a complete solution for outsourced credit control. It covers your receivables due within 12 months against unexpected commercial and political risks (customer bankruptcy, changes to import and export regulations, etc.) so that and you avoid bad debt. It includes vetting customers, financial information on your customers and prospects, debt collection and compensation in case of non-payment.
Another benefit of outsourced credit control is for communications with foreign late-paying customers, when local languages, time differences, cultures and customs are involved. Indeed, outsourcing credit control to a global risk insurer assures your international credit control is carried out by local representatives who know and share the language and cultural background of your client. This can significantly reduce misunderstandings and make the credit control process more efficient.