Good Credit Management Recommendations & Guidance About Collecting Overdue Sales Invoices
The survival and prosperity of each small, medium and large businesses is contingent upon receipt of payment from customers in respect of the product and services that the business offers and invoice for. It is not good enough to secure the sales order and supply the product if that sale can not be transformed into cash. Money is the lifeline of every business and if debtors don’t pay outstanding invoices in a timely manner it can lead to problems. See Transportation Factoring Costs.
Several businesses are obliged to offer credit terms to customers in order to stay very competitive and win orders but this has a bad effect upon their cash flow. The damage caused by non payment (bad debts) can also be considerable, and the longer the period of credit that is offered the more possibility there is for the customer’s circumstances to change, and therefore payment to be put off – in many cases permanently. The secret to success is good credit management and credit control.
There are two areas to effective credit management. The first is taking care in choosing the businesses that you will extend credit terms. The second is to build and employ an effective system of credit control techniques to collect unpaid invoices.
EXTENDING CREDIT TERMS
The following suggestions may be valuable when choosing whether to offer credit terms to a customer:.
Regularly confirm the exact trading name of the customer e.g. XYZ Limited; XYZ Plc; Mr X and Mr Y trading as XYZ; or Mr X trading as XYZ. All of these are distinctively unique and finding out the exact trading name may be crucial in pursing a customer for payment through the legal system, should the need arise. The customer’s headed stationery, business cards or brochures can frequently be helpful in determining the exact name, although always remember they might be wrong.
Provide the minimum credit period that will be competitively appropriate. The longer the credit period the more chance there is that the customer’s financial situations may change.
Ensure that that you have all the customer’s contact particulars: addresses, phone numbers, fax numbers, mobile numbers, email addresses etc. Ideally, take the contact details of the prime movers. These can be extremely helpful if you have to talk to the customer regarding unpaid invoices in the future.
Trade references could be handy but most businesses will have at least a couple of customers that will swear by them.
Credit facts about customers can be purchased from a range of providers. This can give you knowledge into the financial position of a business. You can also ask the customer to provide you with financial information about their business.
If a considerable amount of credit will be at stake consider paying a visit to the customer to verify that the address given exists. A pile of data about a business can often be acquired just by going to their offices and noticing what is going on e.g. are they swamped or is trade slack?
See to it that the customer has checked out your terms of trade and has accepted the credit terms that you have agreed to offer.
Be sure you learn the process for sending your invoices and getting payment from the customer e.g. who do you give them to, when is their check run etc
CREDIT CONTROL COLLECTING UNPAID SALES INVOICES.
The following pointers and hints may be useful in guaranteeing that you have an effective credit control process in place to collect unpaid sales invoices:.
Learn the customer’s payment process and procedures e.g. if you know the date that they perform their monthly check run you can time your statement as necessary.
Take into consideration “pre-dunning”, calling the customer before payment is due to confirm that your invoice has been received and that there are no reasons for non payment.
Start a systematic approach to providing statements, dispatching chasing letters (which gradually become firmer) and calling the customers.
Keep copies of any correspondence and notes about telephone conversations. Validate conversations in writing and ideally get the customer’s written contract to any payment vows.
Try to call back and speak to the individuals concerned in lieu of leaving messages on answer machines.
Think about other techniques of getting in touch with debtors e.g. text messages to mobile numbers or email and fax.
Make sure to remain calm but self-assertive on the telephone.
Look into promptly on any broken promises of payment.
Minimize the process by emailing or faxing documents as opposed to posting.
If required consider stopping further deliveries once invoices are overdue.
The field of credit management and credit control is considerable and these are just a few key points to take into account. A lot of businesses have staff in-house that undertake this help them but there are alternatives.
Factoring companies are experts in out-sourcing such services for their clients. They have specialist staff that can carry out the collection of your sales journal for you and often this can be achieved with cost savings. The cost of invoice factoring should be weighed against the cost of recruiting specialist staff or dealing with the task yourself.
It is also possible to receive bad debt protection (also called non recourse) which can eliminate the need for you to worry about which customers are credit worthy. The factoring company will look into the customers standing for you and they will grant a credit limit for every customer. Also see Transportation Factoring Costs.